Advice on Merger Guidelines for the New Administration

The administration’s antitrust picks are in. President Donald Trump has nominated Gail Slater to be the assistant attorney general for antitrust and Andrew Ferguson – currently a commissioner on the Federal Trade Commission – to become the FTC chair. Upon confirmation by the Senate, the antitrust enforcers will face the issue of what to do with the Biden administration’s Merger Guidelines that were issued on December 18, 2023

The guidelines “identify the procedures and enforcement practices [the Department of Justice and the FTC] most often use to investigate whether mergers violate the antitrust laws.” These guidelines superseded two guidelines, the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines, which in turn were part of a succession of merger guidelines stretching back more than half a century, starting with 1968 Merger Guidelines and followed by updated guidelines in 1982, 1984, 1992, and 1997. Every previous guidelines iteration has reflected a practical update on merger policy based on the agencies’ accumulated experience with mergers and associated refinements in economic theory.

In contrast with earlier merger guidelines, however, whose focus was on economic analysis to predict the likely competitive effects of mergers, the 2023 Merger Guidelines put economics in the back seat, giving pride of place to legal precedent. Legal precedents are cited 85 times in the 2023 Merger Guidelines. For all previous merger guidelines, the corresponding number of references to legal precedent is zero. Strangely, the 2023 Merger Guidelines forswear any attempt at predicting merger effects, stating that “the Agencies do not attempt to predict the future . . . [but] examine the totality of the evidence available to assess the risk the merger presents.”

Although the apparent aim of the 2023 Merger Guidelines is to stay true to legal precedent, the outcome is precisely the opposite. A fundamental feature of merger case law is the incipiency principle. Because mergers are typically investigated in their incipiency prior to consummation, their likely future competitive effects must be predicted. By abandoning prediction, the 2023 Merger Guidelines violate the longstanding incipiency principle.

Relatedly, the guidelines switch from the likelihood of competitive harm standard –  established in courts and reflected in previous merger guidelines – to a risk of illegality standard, with a focus on circumstances where mergers “[c]an [v]iolate the [l]aw.” There is little explication of how high a risk of illegality would trigger an agency challenge. But the standard has become “could,” not “would,” as one FTC official put succinctly.

The justification for this apparent shift in standard appears to be the agencies’ emphasis on “may be” in the Clayton Act Section 7’s “may be substantially to lessen competition, or to tend to create a monopoly.” But it has been understood for nearly a century, beginning with the Supreme Court’s ruling in International Shoe Co. v. Federal Trade Commission in 1930, that “may be” in Section 7 refers to a “reasonable probability” that the merger would lessen competition (or tend to create a monopoly). And it is generally understood by courts that a reasonable probability is considerably greater than zero – it is not a “mere possibility.” A merger’s risk of lessening competition must rise to the level of a reasonable probability – to would, not merely could. This has typically required the agencies to grapple with the economics of the industry and merger in question.

Further, the very next word after Section 7’s “may be” is “substantially.” Specifying a substantial lessening of competition can only be reasonably understood as requiring an assessment of the magnitude of competition potentially lessened. Such a quantitative assessment cannot be undertaken without recourse to an economic analysis of competitive effects. The analysis need not result in a precise quantification, but some quantification is clearly required by the statutory text – sufficient to determine whether the merger’s lessening of competition would be substantial.

If the 2023 Merger Guidelines’ repeated references to competitive risks and how mergers “can” violate the law were intended to afford the agencies greater flexibility in bringing merger challenges, that aspiration is circumscribed by Section 7’s requirement that the posited lessening of competition be both reasonably probable and substantial. A tenuous “risk” that a merger “could” harm competition falls short of vaulting that hurdle.

This radical change in proof standard could require Slater and Ferguson’s immediate attention upon their confirmation. To implement the new and weaker proof standard would likely be disastrous to the agencies’ chances of prevailing in court on a merger challenge based on a mere risk that a merger could lessen competition. Nor could the antitrust enforcers reasonably remain silent on this critical feature of the 2023 Merger Guidelines, given that a primary function of such guidelines is to accurately inform courts and the business community of how the agencies intend to treat proposed mergers.

Would the agencies publish a policy addendum announcing reversion to the longstanding principle that a merger must be found to have a reasonable probability of substantially lessening competition for the agencies to bring a court challenge? Or should the 2023 Merger Guidelines be scrapped altogether? The incoming antitrust enforcers have much to contemplate.

This post comes to us from Alexander Raskovich, a former director of research for the Global Antitrust Institute of the Antonin Scalia Law School at George Mason University. It is based on his recent article, “Conflict or Continuity? An Analysis of the 2023 Merger Guidelines,” published in the George Mason Law Review ,Vol. 31, Issue 4 (September 2024), and available here.

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