Merger Breakups

One of today’s most pressing antitrust questions is how antitrust should address the conduct of dominant technology companies, such as Amazon, Facebook, and Google. Once heralded as the champions of innovation and the modern economy, these companies are now the subject of growing calls for their breakup, including through actions by the federal antitrust agencies to challenge and unwind key mergers in the technology industry, including Facebook-Instagram, Amazon-Whole Foods, and Google-DoubleClick.

But nearly every one of the technology mergers identified for challenge and breakup was previously reviewed and cleared by the antitrust agencies pursuant to the existing federal merger review scheme, including in some instances after a lengthy investigation. The calls for the breakup of the identified technology mergers therefore implicate a much more fundamental antitrust question: Should the antitrust agencies more readily challenge mergers that they themselves previously reviewed and cleared pursuant to the existing federal merger review scheme?  I evaluate that fundamental question of antitrust in a new article, available here.

This article offers a qualified affirmative response to the question posed: The antitrust agencies should increase the extent of their challenges to previously reviewed and cleared mergers, but in a principled way that respects the significant mitigating factors associated with an expansion in such challenges.

The article first shows that an increase in agency challenges to previously reviewed and cleared mergers can significantly improve competition. For supporting empirical evidence, the article draws on the findings of merger retrospectives, which are important empirical studies that evaluate whether particular mergers generated actual competitive harm. The bulk of these studies show that the mergers under consideration ended up undermining competition, including mergers that were subject to the federal merger review process.

At the same time, there are a number of significant reasons to be wary about a shift in antitrust policy that involves a mere ratcheting up of the number of agency challenges to mergers that the agencies previously reviewed and cleared. It is widely recognized that consumer welfare is better served if anticompetitive mergers are challenged and corrected during the merger review process than after the fact. As the article explains, an increase in the extent of ex-post merger challenges can undermine the effectiveness of ex-ante review and can offset competitive gains in other important ways.

Because of these mitigating factors, the appropriate policy response is not for the agencies to simply increase the extent to which they challenge mergers that they previously reviewed and cleared. Instead, the optimal policy response is for the agencies to increase the number of post-review, post-clearance challenges but in a principled way that reflects the potential benefits and costs associated with an expansion in that type of challenge. The article conducts that principled analysis and identifies important limiting conditions that should be satisfied before the agencies challenge a previously reviewed and cleared merger: (1) the preponderance of the agencies’ evidence shows that the merger has or is likely to substantially lessen competition; and (2) the agencies reasonably believe there is a remedy that would correct the merger’s competitive harm. The article’s analysis and conclusions provide a roadmap for the expansion of agency challenges to previously reviewed and cleared mergers, both generally and with respect to the targeted technology mergers in particular.

This post comes to us from Menesh Patel, acting professor of law at the University of California, Davis, School of Law. It is based on his recent article, “Merger Breakups,” available here.

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