Criticism of antitrust enforcement efforts undertaken by the federal antitrust agencies – the FTC and DOJ (Antitrust Division) – is nothing new. Reasonable minds can differ as to whether a particular merger or conduct challenge by the agencies advances the established goal of U.S. antitrust enforcement: to protect competition for the benefit of consumers.
At the same time, however, there is a broader debate over the scope of that established goal and whether the objectives of antitrust enforcement should change and the tools of enforcement should be expanded. While this debate is not new either, it often seems to accelerate in advance of elections, as presidential (and congressional) candidates sometimes embrace antitrust enforcement “reform” as a campaign issue. As antitrust enforcement policy can dovetail with broader political themes – including populism, “big business” power, wealth inequality, labor protections, national security, and data privacy – this should come as no surprise.
The most recent and aggressive “reform” proposals have been advocated by presidential candidates Elizabeth Warren and Bernie Sanders. For example, in 2017 Senators Warren and Schumer (and others) rolled out their “Better Deal” platform for the 2018 congressional elections. That proposal called for, among other things:
New “standards” for merger reviews, including agency scrutiny of whether mergers reduce wages, cut jobs, or hinder the ability of small businesses and entrepreneurs to compete;
A presumption of illegality of large mergers, unless the merging firms can establish the benefits of the deal;
Post-merger deal reviews, to identify agency-approved remedies that may have failed to achieve their intended outcomes; and
A new competition “advocate,” to recommend competition investigations to the FTC and DOJ.
In the 2020 presidential race, some proposed antitrust enforcement reforms are eclipsing that “Better Deal” platform in scope. For example, Bernie Sanders recently proposed antitrust enforcement changes, including:
Replacing the consumer welfare standard for merger reviews;
Breaking up “existing monopolies and oligopolies” that have “accumulated dominant market share and are able to wield their market power in anti-competitive ways;”
Taking “antitrust enforcement out of the control of the captured judiciary” and allowing the agencies (or at least FTC) to “halt mergers without challenging them in federal court;”
Reviewing and, “when necessary,” unwinding previously approved transactions;
Directing the agencies to “establish new guidelines that restrict mergers and acquisitions,” which include a “special focus on economic security, job security, and competition,” and “bright-line merger guidelines that set caps for vertical mergers, horizontal mergers, and total market share;”
Rejecting all mergers involving companies found to engage in certain behaviors: “No merger will be approved for companies that engage in the behaviors identified by the FTC as harming workers, competition, or fair pricing;” and
Banning the “revolving door of personnel” between industries and regulators.
Proposed antitrust enforcement “reforms” were even discussed during the fourth televised debate of Democratic Party candidates, held on October 15, 2019. Senator Warren repeated her call to break up certain consummated mergers involving “Big Tech” firms and has proposed a “platform utility” rule” that would bar Big Tech firms from selling products that competed with third-party vendors on the platforms controlled by those firms. Senator Warren and other candidates have repeated calls for increased agency scrutiny of mergers.
Presidential primary contests often invite surprising proposals, whether politically viable or not, intended to energize a candidate’s political base, and the scope of the proposals for antitrust enforcement reform is no exception. The “New Brandeis School” view of competition, moreover, a relatively new academic proposal that challenges the “Chicago School” focus on consumer welfare, cites market structure as a better inquiry for competition policy, recognizes that numerous federal agencies (and state governments) exercise “antimonopoly” powers already, and proposes direct government regulation of some large firms.
Below we offer some reactions to some of these proposals, focusing not on the political viability of the proposals but rather on possible effects from, and difficulties to, their implementation.
This standard for merger reviews has been applied by U.S. courts and antitrust authorities across Republican and Democratic administrations for many decades and generally reflects the language of Section 7 of the Clayton Act, which addresses mergers where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” Section 7 does not speak to labor, environmental, corporate governance, or other possible considerations (which could be affected by a particular merger), nor does Section 7 even state a preference for “small business” over “big business.” Replacing the consumer welfare standard with some broader standard that considers merger impacts unhinged to “competition” or “competitive effects” could substantially alter the predictability of antitrust enforcement by introducing a potentially broad range of considerations not identified by Section 7 as legally relevant to merger reviews. Such considerations could even lead to the rejection of highly synergistic mergers likely to generate pro-competitive price reductions benefiting consumers, an outcome inconsistent with the current scope of Section 7. This change would presumably require congressional action.
Section 2 of the Sherman Act already addresses monopolization, providing the antitrust agencies with legal authority to challenge abuses of monopoly power. We view this proposal not as a call for additional legislative authority but to enforce Section 2 more aggressively. One potential danger in this proposal, however, is the recognition that some businesses require significant scale (because of capital requirements, network effects, etc.) to operate with economic efficiency (for the benefit of consumers as well as other stakeholders), and other businesses may achieve significant scale simply by outperforming their competitors. Current Section 2 jurisprudence, however, requires proof that a business has engaged in anticompetitive conduct to achieve or maintain monopoly power, not merely some ability to “wield their market power in anti-competitive ways.” Applying an ability standard could threaten economically efficient scale achieved through superior business acumen, an outcome contrary to current Section 2 jurisprudence.
FTC and DOJ currently have no such power under the Clayton Act; rather, as with most dispute resolution in the United States, the federal courts are called upon to adjudicate merger challenges. (While FTC does have administrative authority to challenge mergers, FTC routinely seeks a preliminary injunction in federal court to prevent a deal from closing while FTC’s administrative challenge is pending.) This use of federal courts to adjudicate merger challenges is consistent with the American concepts of due process and “having one’s day in court.” And the suggestion in one proposal, that the federal judiciary has been “captured,” is belied by the fact that FTC and DOJ both “win some and lose some” merger challenges. If the federal judiciary has been “captured,” it is not obvious by whom.
FTC and DOJ have this power already. Merger clearance under the Hart-Scott-Rodino Act (HSR) does not estop the agencies from later challenging a transaction, although once cleared such challenges are rare. In contrast, agency challenges to non-reportable and consummated transactions are not uncommon. A merger pre-clearance process such as HSR – which (presently) carries with it a high degree of review finality – is important to business confidence.
New merger guidelines that reflect non-competition considerations (such as job security) would modify the consumer welfare standard discussed above and, in the absence of new statutory authority, likely contravene Section 7 of the Clayton Act as currently drafted. One problem with such “new guidelines” – unhinged from “competition” or “competitive effects” – is that successive administrations might amend (or reinterpret) such guidelines in response to whatever political issue du jour allowed that administration to win political power. While antitrust enforcement is not free of politics currently (i.e., the President does nominate the Assistant Attorney General (Antitrust Division), appoint the FTC Chairperson, and nominate FTC commissioners when openings arise, and the House and Senate subcommittees with antitrust enforcement oversight regularly hold hearings on high-profile mergers), both DOJ and FTC have a respectable history of pursuing enforcement efforts generally free from partisan politics. The issuance of new merger guidelines that reflect non-competition considerations may open the door to regular amendments to the guidelines and increase the likelihood that partisan politics could replace factual and economic analysis in merger evaluations. Such an outcome would not promote business confidence. Moreover, “bright-line” merger guidelines – setting caps for vertical mergers, horizontal mergers, and total market share – would ignore the fact that vertical foreclosure risks and “market power” are in practice not so easily quantifiable. The agencies already employ market share screens (such as HHI) to identify those mergers more likely to require close scrutiny. Bright-line caps, however, would necessarily threaten certain mergers that are competitively neutral, or even pro-competitive, through resulting efficiencies and synergies.
Blocking mergers based on agency findings of behavior “harmful” to “workers, competition, or fair pricing” opens the door to agency consideration of various non-merger-specific criteria. As market forces generally determine pricing, how would FTC and DOJ ascertain “fair” pricing or practices “harmful” to workers? Identifying and evaluating merger-specific competitive effects is already a challenge. Inserting additional behavioral criteria into the review mix potentially could convert the antitrust agencies from competition advocates into de facto labor and price regulators, reflecting a significant transformation from their present purpose as competition advocates. AAG Delrahim has previously expressed concern with merger-specific behavioral remedies based in part on a view that such remedies often require agency monitoring, imposing on DOJ regulator (as opposed to law enforcement) functions. Inserting behavioral criteria into the merger evaluation process could elevate this concern.
While criticism of specific antitrust enforcement efforts by FTC and DOJ may sometimes be justified, proposals to transform the mission of these agencies should be approached with care and recognition of the possible effects of their implementation.