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Background: The Federal Trade Commission (FTC) and 17 states this month filed a major antitrust complaint against Amazon. The much-anticipated suit comes more than two years after Lina Khan became FTC chair and more than six years since her student note criticizing Amazon’s practices. The complaint describes a broad scheme in which Amazon (1) used various practices to prevent sellers from offering prices at Amazon’s rivals below the level at Amazon (anti-discounting), and (2) conditioned a product’s eligibility for Amazon Prime on whether the seller used Fulfillment by Amazon (FBA). This conduct allegedly violates Section 5 of the FTC Act as an unfair method of competition, Section 2 of the Sherman Act as maintenance of monopoly, and various state laws.

But… It will be difficult for the FTC and the states to prove Amazon’s monopoly power and to discredit the procompetitive justifications for the challenged conduct. Retail competition is robust and the proposed narrow markets are ripe for criticism. Moreover, the challenged conduct is core to Amazon’s offer of important consumer benefits, such as fast and reliable shipping. Whatever remedy the FTC ultimately pursues, it risks undermining the benefits Amazon has created for consumers and sellers alike.

KEY TAKEAWAYS

SEEMINGLY TRADITIONAL THEORIES OF HARM

The complaint relies on two overarching theories of anticompetitive conduct: anti-discounting and conditioning Prime eligibility on a seller using FBA.

The first is reminiscent of a challenge to “most-favored nation” (MFN) provisions, in which a defendant demands terms that are equivalent to or better than those given to its rivals. However, MFNs are agreements typically challenged under Section 1 of the Sherman Act; the FTC doesn’t explicitly claim that Amazon’s unilateral policy constitutes an MFN.

The second theory appears similar to a tying claim. But the FTC doesn’t allege an actual tie between the sale of two distinct products, perhaps because sellers cannot buy the Prime badge; they must qualify for it by meeting the two-day shipping requirement (which FBA ensures).

NARROW RELEVANT MARKETS

Both of the relevant markets put forward in the FTC’s complaint fail to reflect real-world competition.

Amazon allegedly possesses monopoly power in the “online superstore market.” According to the FTC, online “superstores” provide a unique breadth and depth of products and unique services that brick-and-mortar stores and smaller online retailers don’t. Thus the commission alleges that these rivals cannot constrain Amazon’s market power over consumers. 

This alleged market is so narrowly drawn that it appears to include just Amazon, eBay, and the online stores offered by Walmart and Target. This excludes single-brand online retailers, product-category-specific online retailers, and all brick-and-mortar stores. It beggars belief that these rivals don’t exert competitive constraints on Amazon. After all, no consumers shop exclusively online, and price-comparison services like Google Shopping facilitate shopping across all online outlets. This will almost certainly prove to be a sticking point when the case goes to trial.

The FTC also defines a relevant market for “online marketplace services”—i.e., the services needed to sell products online (including access to shoppers, online interface, pricing capabilities, customer reviews). This excludes traditional wholesalers and e-commerce platforms like Shopify that offer software allowing sellers to create their own online stores.

As with the first market, it’s hard to imagine these claims will be borne out by the evidence. Most retail sales still occur offline and manufacturers and brands readily access these outlets. And the recent success of new marketplaces like Shein and Temu—which entered the U.S. market during the FTC’s investigation of Amazon—further undermines both the alleged market and Amazon’s market power.

OVERLOOKING THE BENEFITS OF AMAZON’S CONDUCT

While both unlawful MFNs and unlawful tying would be legitimate theories of harm, both are also vertical restrictions reviewed under the rule of reason, which requires weighing the anticompetitive and procompetitive effects.

The economics literature shows that MFNs can promote efficiency by protecting investments that couldn’t have been recouped without the protections offered by an MFN, such as Amazon’s substantial investment in the infrastructure to deliver products within two days. These provisions can benefit consumers by cutting their search costs and offering retailers incentives to improve the quality of their search and display capabilities.

Economic theory also suggests that it can be cheaper to offer some products together, rather than selling them separately; in some cases, it may be necessary to sell the products together in order to offer the products at all. If Amazon’s FBA services are critical for it to dependably deliver on Prime’s promise of two-day-shipping, then the alleged tying may be procompetitive. 

RESTORING ‘FAIR COMPETITION’

While the FTC’s complaint doesn’t explicitly ask for Amazon to be broken up, it does ask for the court to provide “equitable relief, including but not limited to structural relief, necessary to restore fair competition.” 

It’s anyone’s guess what this means. “Fair competition” isn’t part of U.S. antitrust case law or mainstream economic terminology.

This seemingly innocuous wording may be used to impose the FTC’s idiosyncratic—and nostalgic—vision of online retail on Amazon. Worse, it may be a euphemism for breaking up the company.

 

Abstract

In 2014, I published a pair of articles—Administrative Antitrust and Chevron and the Limits of Administrative
Antitrust—that argued that the Supreme Court’s recent antitrust and administrative law jurisprudence was pushing antitrust law out of the judicial domain and into the domain of regulatory agencies. The first article focused on the Court’s then-recent antitrust cases and argued that the Court, which had abrogated most areas of federal common law, had shown a clear preference for handling common law-like antitrust law on a statutory or regulatory basis where possible. The second article evaluated and rejected the Federal Trade Commission’s (“FTC’s”) long-held belief that its interpretations of the FTC Act do not receive Chevron deference. This Article will revisit those articles in light of the past decade of Supreme Court precedent. In reviewing those articles, this Article will argue that, for the same reasons that the Court seemed likely in 2013 to embrace an administrative approach to antitrust, today it is likely to view such approaches with great skepticism unless they are undertaken on a cautious and incrementalistic basis. That is, the Court will embrace an administrative approach to antitrust where it will prove less indeterminate than judicially defined antitrust law. If the FTC approaches antitrust law aggressively, decreasing the predictability of the law, the Court seems likely to close the door on administrative antitrust for reasons sounding in both administrative and antitrust law. This conclusion differs from other current work examining the Commission’s authority—such as on major questions grounds or whether the Commission has substantive “unfair methods of competition” rulemaking authority—in that it is primarily based on the Court’s views on the relationship of antitrust and administrative law.

I.        Introduction

We appreciate the opportunity to comment on the proposed changes to the premerger notification rules recently published by the Federal Trade Commission (“FTC”), with the concurrence of the Assistant Attorney General of the Antitrust Division of the U.S. Department of Justice (“DOJ” or “Division”).[1]

Merger law in the United States has largely tracked developing economic theory.[2] This approach has tended to reject structural presumptions about a merger’s likely effects on competition and consumers (understanding, that is, that “big” is not necessarily “bad”). It encourages weighing the potential anticompetitive effects of a transaction against its potential procompetitive efficiencies.

That trend in enforcement and jurisprudence notwithstanding, current leadership at the agencies has signaled a more aggressive approach to enforcement, dismissing likely efficiencies and other merger benefits. For instance, the Chair of the FTC has argued that Section 7 of the Clayton Act:

is a broad mandate aimed at prohibiting mergers even when they do not constitute monopolization and even when their tendency to lessen competition is not certain. . . . [E]ven if a merger does create efficiencies, the statute provides no basis for permitting the merger if it nevertheless lessens competition.[3]

The substantive changes to both the merger guidelines and the premerger notification form relate to this goal of more aggressive merger enforcement. As we explain below, while certain changes are required by statutory amendments to the Clayton Act, many of the proposed amendments would be both unnecessary and inappropriately burdensome and costly. Collectively, they would exceed the agencies’ statutory authority, under Section 7A of the Clayton Act,[4] to require the production of “such documentary material and information relevant to a proposed acquisition as is necessary and appropriate … to determine whether such acquisition may, if consummated, violate the antitrust laws.”[5]

While further research, enforcement experience, and legal precedent might develop such that certain additional information would reasonably be required of all filers, the agencies have not presented the requisite developments in the NPRM or, to the best of our knowledge, elsewhere. Such developments should, at least, precede the imposition of substantial new filing requirements. The HSR regulations and form are not supposed to be a substitute for, e.g., the FTC’s study authority under Section 6(b) of the FTC Act.[6]

The scope of the NPRM and the diversity of additional information that filers would be required to produce should the proposals be adopted together raise a fundamental question: how will the new requirements materially improve merger screening?  Are the agencies often or systematically clearing anticompetitive mergers because of information not included in initial filings, and that staff cannot glean via, e.g., follow-up queries to the parties, voluntary requests, pull-and-refiles, and second requests? Would such mergers fail to clear under the proposed filing requirements?  Answers to these and other questions, which nowhere appear in the NPRM, are needed to maintain that these changes are necessary and appropriate, given the other means by which the agencies can obtain information to inform premerger screening (such as through second requests).

Section I offers some background concerning the purpose of the HSR form and filing requirements, and on the changes that have been proposed. Section IV provides a brief discussion of the proposed changes that are necessary or otherwise reasonable. Section V discusses the changes that are problematic. These would increase compliance costs for merging parties generally, with disproportionate impact on small and first-time filers; they would impose additional burdens on agency staff; yet it is unlikely that they would provide countervailing benefits to competition and consumers.

II.      Background: Merger Enforcement and the HSR Premerger Notification Form?

At the outset, we note that the proposed changes to the premerger notification rules (“NPRM”) were closely followed by the agencies’ publication of new draft merger guidelines.[7] That makes some sense, as the two are closely intertwined. Section 7 of the Clayton Act prohibits mergers where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”[8] In 1976, Congress enacted the Hart–Scott–Rodino Antitrust Improvements Act (“HSR Act”) to facilitate enforcement of Section 7. Specifically, the HSR Act created a premerger notification mandate, under which transactions exceeding certain market share or value thresholds must be reported to the DOJ and FTC at least 30 days prior to closing.[9] The agencies use these 30 days to screen proposed large transactions and to determine whether further scrutiny is needed as to whether a transaction might violate the Clayton Act.[10]

The premerger notification process is a congressionally created mechanism that requires parties to relatively large transactions to provide the agencies with notice of, and opportunity to go to court to enjoin, those transactions before they close. Initial filings are a critical basis on which agency staff can screen proposed mergers effectively, although, of course, the production required by the HSR form itself is far from the only source of information available to staff screening mergers prior to closing.

Reviewing staff can—and routinely do—ask merger-specific follow-up questions during that initial 30-day period, in addition to consulting third parties and other sources of information. The agencies can then issue a request for additional information, called a second request, to the parties to get further details about a transaction and to decide whether to seek to enjoin the merger from proceeding.[11] With that second request, the reviewing agency may extend the screening period for an additional 30 days.[12] In the interim—often prompted by additional staff questions—parties may elect to “pull and refile,” which restarts the initial 30-day clock and permits additional information gathering by the staff in advance of a decision regarding whether to issue a second request.

The HSR premerger notification requirements address a basic problem of antitrust law: you can’t “unscramble an egg.”[13] Once a merger is finalized, businesses begin intermingling their operations, personnel, finances, business plans, trade secrets, and intellectual property in various ways. The larger the firms—or the more complex the integration or consolidation—the more difficult it becomes to undo (or “unwind”) a consummated merger. Premerger notification creates an opportunity for the antitrust agencies to identify and pause pending mergers, in order to allow for more thoroughgoing investigation of their potential competitive effects before any eggs have been scrambled.

When the HSR Act was adopted, it was expected that only 150 or so transactions each year would be large enough to trigger review.[14] In time, that estimate proved to be off by more than an order of magnitude; in recent years, more than that many transactions are notified each month.[15] The effect has largely been to transition merger law in the United States from an ex post enforcement-based regime to an ex ante regulatory regime.[16]

Despite this change, the premerger notification regime is generally viewed as successful. [17] This is because the program has been designed and managed with the understanding that it is meant only to identify mergers that are likely problematic; and, conversely, that it is meant not to impede the vast majority of mergers that are unlikely to be problematic (but likely procompetitive or benign). [18] Combined with the merger guidelines—which have (in the past) provided clear guidance on how the agencies will review materials submitted as part of the premerger notification process—the HSR Act’s premerger notification process has created a robust and relatively low-burden system. This system enables business and antitrust agencies alike to identify problematic transactions, while allowing most deals to proceed with minimal cost or delay. The balance is captured in a December 2020 advance notice of proposed rulemaking that contemplated other premerger-filing amendments: “[t]he Agencies have a strong interest in receiving HSR filings that contain enough information to conduct a preliminary assessment of whether the proposed transaction presents competition concerns, while at the same time not receiving filings related to acquisitions that are very unlikely to raise competition concerns.”[19]

A very large majority of reported mergers are consummated without challenge or allegation of likely anticompetitive effects. For example, the agencies reported challenging only 32 of the 3,520 transactions reported in fiscal year 2021; that is, 0.009%.[20] Across the 10-year period from fiscal years 2012-2021 (inclusive), in the vast majority of cases, neither agency even issued a second request. It is reported that DOJ issued second requests in frequencies ranging from 0.7% to a high of 2.1% in 2012, while FTC issued second requests in 1.4% to 1.9% of investigations.[21]

The agencies’ multiple opportunities to receive and request information prior to the consummation of a transaction, along with the relative infrequency with which additional information is requested, or with which transactions are challenged, are the context in which to ask whether it is “necessary and appropriate” to require the production of certain information with the initial HSR filing. As a simple example, if roughly 2% of noticed transactions receive a second request, the compliance burden of requesting information of all firms as part of the premerger notification process is roughly 50 times greater than it would be if the information were requested only with a second request.[22] And that burden is one imposed on both reviewing staff and filers.

III.    Direct Costs

From the outset, it is important to understand that the proposed amendments are anything but costless. Estimates suggest the new rules will lead to somewhere between $350 million and $2.23 billion in additional annual compliance costs. Not only will these additional costs deter firms, at the margin, from filing—and hence from merging—but they will also be passed on to consumers (at least in part) when firms do. The substantial costs that would be imposed by many of the proposed requirements raises the bar for deeming such amendments appropriate.

Even the FTC estimates a massive increase in compliance costs of approximately $350 million, to more than $470 million per year. But that estimate is likely a serious underestimate, as it is based on, among other things, an unscientific “estimate” of the time involved and a dated assumption about the average hourly costs imposed on filers’ senior executives and firms’ counsel.

The U.S. Chamber of Commerce conducted “a survey of 70 antitrust practitioners asking them questions about the proposed revisions to the HSR merger form and the new draft merger guides.”[23] Based on average answers from the survey respondents, the new rules would increase compliance costs by $1.66 billion, almost five times the FTC’s $350 million estimate. For the current rules, the average survey response puts the cost of compliance at $79,569.[24] Assuming there are 7,096 filings (as the FTC projects for FY 23), the total cost under the current rules would be $565 million. Under the new rules, the average survey response estimates the expected cost of compliance to be $313,828 per transaction, for a total cost of $2.23 billion.[25] The relevant total costs for all filing are summarized in Table 1. Table 2 presents the numbers on a per-filing basis.

Even if we assume the U.S. Chamber of Commerce’s survey was biased toward practitioners who work on more complex and costly transactions, it is dramatically higher than the FTC’s estimate. The FTC estimates that 45% of filings have overlaps.[26] For simplicity, assume survey respondents work only on overlaps and the remaining 55% of filings require no extra work.[27] Even with these extreme assumptions, the amendments would increase the cost of filing by nearly $750 million—more than double the FTC’s estimate.

On any reasonable estimate, the amendments are likely to impose substantial new costs on all filers and may have significant effects on firms’ incentives to merge—and important consequences for consumers when they do. They may also have an outsize impact on relatively small filers. The merits of these amendments should thus be carefully considered against their substantial and widespread costs.

IV.    Required and Reasonable Changes to the Reporting Requirements

The HSR form has been amended many times since 1976.[28] Some of the amendments have been minor or even ministerial, and many—not all—have been required by statutory amendments to the pertinent provisions of the Clayton Act.[29] For example, revised reporting thresholds were noticed in January 2023,[30] January 2022,[31] and February 2021,[32] and the commission published an advance notice of proposed rulemaking regarding various potential changes in December 2020.[33]

Consistent with past practice, some of the amendments proposed in the NPRM implement 2022 amendments to pertinent provisions of the Clayton Act, while others appear to streamline or clarify reporting requirements. That is, some of the proposed changes are necessary and others appear at least appropriate.

First, as noted in the NPRM, certain proposed amendments implement 2022 statutory amendments imposed by the Merger Filing Fee Modernization Act of 2022.[34] For example, the 2022 statutory amendments require the disclosure of subsidies from nations or entities that Congress has identified as “foreign entities of concern” and correspondingly requires that the agencies collect such information with premerger filings, and that they promulgate regulations to that effect.[35] The NPRM’s proposed changes to Part 801.1 of the HSR rules appears to be a reasonable implementation of 2022 congressional charge.

Second, the NPRM’s proposal to amend Part 803 to require electronic filing[36] will likely be salutary, especially with the successful implementation of an e-filing platform that, according to the NPRM, is under development.[37] As observed in the NPRM, the agencies have been accepting electronic HSR filings since March 2020.[38] Many filers have taken advantage of the electronic-filing option since then. Furthermore, premerger screening by staff can be carried out more efficiently with electronic documents. Given the increased digitization of pertinent documents across the economy, it is reasonable to assume that the formal routinization of electronic filing will streamline both premerger filing and the screening of filings by agency staff. The extent to which this will make premerger filing and screening more efficient depends on the successful implementation of an e-filing platform. If successful, the benefits should be substantial.

V.      Problematic Changes to the Filing Rules Are Not Justified by the NPRM or Otherwise

While several of the NPRM’s proposed changes appear to be reasonable attempts to implement new statutory mandates or, as in the case of electronic filing, pragmatic initiatives to update and streamline the filing and review processes, others appear cumbersome, costly, and unnecessary or, at best, substantially unjustified by the NPRM or other available evidence.

For example, Parts 4(c) and 4(d) of the current premerger notification form require merging parties to provide copies of “all studies, surveys, analyses and reports which were prepared . . . for the purpose of evaluating or analyzing the acquisition” and “all Confidential Information Memoranda . . . that specifically relate to the sale.”[39] The proposed changes would require an additional “narrative that would identify and explain each strategic rationale for the transaction.”[40] That narrative would not have been created in the ordinary course of business, and likely not even in the context of contemplating a transaction. Creating it would come at a real cost, in terms of billable hours and executives’ time. This might imply a requirement that the parties prepare a reply brief to a potential future antitrust challenge to the transaction, without the benefit of knowing the specific arguments that the agencies would make against it.

In brief, the changes proposed in the NPRM would force parties to submit far more information than the HSR rules now require. Much of this information appears to be of, at best, peripheral value to screening mergers under the Clayton Act. The result is that the NPRM would greatly increase the burden placed on all merging parties, while apparently offering little countervailing value to competition and consumers, or even to the staff charged with premerger screening. Some have even suggested this may be the purpose of the changes: “killing deals softly”[41] by making mergers more costly in an effort to deter at least some of them, including even some that ultimately would be cleared by agencies and courts.

A.          Non-Horizontal Information

The NPRM would require both filing entities to submit considerable additional material about supply and other non-horizontal relationships between the parties, including both formal agreements, such as supply, distribution, purchase, and franchise agreements,[42] and a “supply relationships narrative section that would require each filing person to provide information about existing or potential vertical, or supply, relationships between the filing persons.”[43] The latter type of information would not likely be documented in the ordinary course of business.

The NPRM acknowledges that “this will increase the burden on filers whose transaction involves existing supply relationships or who supply or purchase from companies that compete with the other filing party.”[44] The NPRM also acknowledges that 2001 amendments to the HSR rules removed some additional vertical information that had been required “because the type of information collected did not prove useful enough to the Agencies as a screen for potential non-horizontal relationships to justify the burden of providing it at that time.”[45] The extra burden is now supposed to be justified, however, as “it would allow them to quickly identify those transactions that raise concerns about non-horizontal competitive effects.”[46]

The basis of the commission’s claim about a newfound utility for such required production is unclear. There remains the basic question of how the new requirements will materially improve merger screening. The agencies do not offer any evidence to suggest they often or systematically clear anticompetitive mergers because of information that is not included in initial filings, that staff cannot obtain via follow-up queries to the parties, voluntary requests, pull-and-refiles, and second requests, etc. In other words, there is little to suggest that many mergers would be challenged, but for the supposed lacunae in the HSR requirements.

It is worth recalling, in that regard, that a “second request” extends the initial 30-day screening period by an additional 30 days, and that Section 7A of the Clayton Act affords the agencies considerable discretion in determining “ all the information and documentary material required to be submitted pursuant to such a request.”[47] That is, the agencies have ample opportunity to obtain necessary documents that are not included in the initial premerger notification.

When the draft merger guidelines were issued, an accompanying statement by FTC Commissioner Alvaro M. Bedoya, joined by Chair Lina Khan and Commissioner Rebecca Slaughter, also addressed the question of what is missing from the extant filing requirements—i.e., what missing information impedes merger screening, to the detriment of competition and consumers? Addressing “periods of high merger activity” generally, and mergers by large tech firms specifically, the statement argues that a:

lack of relevant information is especially problematic during periods of high merger activity . . . The Commission’s recent 6(b) inquiry into unreported acquisitions by Apple, Amazon, Facebook (now Meta), Google, and Microsoft during 2010-2019 also highlighted the importance of collecting more information on the firm’s history of acquisitions, including non-horizontal and small prior acquisitions. The study captured how these firms structured acquisitions, the sectors they had identified as strategically important for acquisitions, and how these acquisitions figured into the companies’ overall business strategies.[48]

Of course, small or non-horizontal mergers might be competitively significant under particular facts and circumstances. But the study in question does not find, or even suggest, that such transactions have been typically, frequently, or in any instance anticompetitive, much less that the NPRM’s proposed changes would have allowed the staff to spot such anticompetitive mergers before they were consummated. Indeed, the study does not appear to address at all the question of whether any mergers of interest were anticompetitive. And the report expressly states that it “does not make recommendations or conclusions regarding the HSR thresholds.”[49]

A recently published paper by Ginger Zhe Jin (former director of the FTC’s Bureau of Economics), Mario Leccese, and Liad Wagman (formerly a senior economic and technology advisor in the FTC’s Office of Policy Planning who, in that capacity, played a leading role in conducting the above 6(b) study) is at least somewhat in tension with the commissioner’s representation of the study.[50] The paper finds, among other things, that “GAFAM acquisitions are less concentrated across tech categories than other top acquirer groups,” and that “[o]verall, we find that technology acquisitions do not shield GAFAM from competition, at least not from other GAFAM members or other firms that acquire in the same categories.”[51]

To be sure, neither the FTC study nor the related—more thorough—investigation by Jin, Leccese, and Wagman, demonstrates that none of the mergers in question had anticompetitive consequences. They do, however, sharpen the question of the agencies’ basis—if any—for requiring considerable additional information. In brief, the NPRM presents no evidence to contradict or reverse the 2021 determination that the screening utility of such additional non-horizontal information did not justify the burden it imposed. And that is a burden on both filing parties and reviewing staff.

B.          Labor Information

The NPRM proposes to require the production of material for “a new Labor Markets section” comprising considerable information on employees of the merging parties—information not previously identified under the HSR regulations.[52] The likely utility of this information is unclear.

1.        Overlaps in quasi-labor markets

Both the acquiring party and the target would be required to gather information on their employees in each of five standard occupational classification (SOC) categories, with occupations defined by six-digit SOC codes.[53] For each of the five largest such groups of employees, both filers would be required to identify any SOC codes in which they both employ workers, as well as any overlap in employees’ commuting zones and the total number of employees within each commuting zone.[54]

The NPRM acknowledges that neither six-digit SOC codes (developed by the U.S. Bureau of Labor Statistics) nor commuting zones (as determined by the U.S. Agriculture Department’s Economic Research Service) were developed to facilitate competition analysis generally, or merger screening specifically. Thus, they do not determine the product/labor markets or geographic markets in which labor competition might be impeded. The NPRM nonetheless suggests that such information will serve as a useful “screen” or “initial proxy for labor issues while balancing the burden on filers by limiting the request to their five largest categories of workers.”[55]

Given the systematic misfit between the proposed “Labor Markets” section and any actual labor markets, given the agencies lack of experience in analyzing the local labor-market effects of proposed mergers, and given the hard questions of when or under what conditions such labor-market effects might be both material and unlikely to covary with product-market effects, we suggest that the screening utility of the new information remains unclear.

In addition, the NPRM seeks comment on the question of whether such information would be costly to collect. In that regard, it is worth noting that firms are highly unlikely to collect or maintain this employee information in the manner proposed in the ordinary course of business. Hence, the gathering of such information might represent a substantial new burden on HSR filers. Compiling such information is not what is ordinarily understood to be “production” in the discovery context, and it would be a burden with unclear benefits to competition and consumers.

Of course, certain labor-market information may be pertinent to the analysis of certain mergers. But if it is unclear what new labor information would be useful, reasonable, and necessary to merger screening, then further research—as well as further enforcement experience—is warranted to determine the scope of such information before the imposition of costly regulations. As noted in the introduction to these comments, the HSR rules and form are not supposed to be substitutes for enforcement experience or, e.g., the FTC’s study authority under Section 6(b) of the FTC Act.

2.        Worker and workplace-safety information

In addition, both filing firms would be required to identify various “worker and workplace safety information.”[56] Specifically, for the five years immediately preceding the filing:

…any penalties or findings issued against the filing person by the U.S. Department of Labor’s Wage and Hour Division (WHD), the National Labor Relations Board (NLRB), or the Occupational Safety and Health Administration (OSHA) in the last five years and/or any pending WHD, NLRB, or OSHA matters. For each identified penalty or finding, provide (1) the decision or issuance date, (2) the case number, (3) the JD number (for NLRB only), and (4) a description of the penalty and/or finding.[57]

The purported rationale for this requirement appears strained. The NPRM suggests that “[i]f a firm has a history of labor law violations, it may be indicative of a concentrated labor market where workers do not have the ability to easily find another job.”[58] That is not impossible, but it does not seem likely, and the agencies provide no basis on which to think that the signaling value of such information would be significant.

According to the Department of Labor’s Occupational Safety and Health Administration (“OSHA”), these types of violations occur most often in the construction and general-industry sectors. Of the 10 most frequently cited OSHA violations, five are in the construction sector—not commonly a highly concentrated one—and five are in “general industry.”[59] We are not aware of any literature showing a significant correlation between such violations and highly concentrated product markets (or even industries), or with highly concentrated labor markets, much less with anticompetitive mergers, and the NPRM does not cite any.

VI.    The Limits of Reasonable and Necessary Filing Requirements

As described briefly in the background section of these comments above, certain aspects of the premerger notification process are specified in the statute, while others are left to agency implementation and discretion. Section 7A(a) of the Clayton Act specifies the transactions for which notice must be given.[60] And Subsections (b)(1) and (e)(2) specify the duration of the initial waiting period, as well as that for second requests.[61] But other aspects of the premerger notification process are delegated to the agencies to develop by rule, requiring that:

The Federal Trade Commission, with the concurrence of the [DOJ] and by rule in accordance with section 553 of title 5, consistent with the purposes of this section—shall require that the notification required under subsection (a) be in such form and contain such documentary material and information relevant to a proposed acquisition as is necessary and appropriate to enable the Federal Trade Commission and the Assistant Attorney General to determine whether such acquisition may, if consummated, violate the antitrust laws[.][62]

Implementation of premerger notification is subject to the rulemaking process outlined in Section 553 of the APA.[63] This process requires, for instance, putting out a notice of proposed rulemaking, soliciting comments, and publishing final rules that explain their basis and respond to substantial comments.[64] Rules adopted through this process carry the force of law and are binding on parties and the courts. A challenge to such rules would need to show that the agency had been arbitrary or capricious in adopting them,[65] or that there were defects in the rulemaking process such as a failure to respond to significant comments or adoption of final rules that were not a “logical outgrowth” of those contained in the proposed changes to the rules.[66]

As described above, the proposed changes to the premerger notification requirements are significant. Indeed, the FTC’s own estimate of the costs of the proposal exceeds the entire 2023 antitrust budget for the FTC and DOJ combined.[67] More substantively, the proposed changes to the premerger notification form would impose significant costs on firms; and some would appear prejudicial.

A particular area of substantial change discussed above has to do with the production of considerable employee or labor-regulation information, such as the parties’ history of OSHA complaints.[68] This, again, would require compiling information firms are not likely to gather and maintain in the ordinary course of business. This concern is even more severe, because the agencies’ concern with the local labor-market implications of mergers—including mergers that may have national geographic markets from a product perspective—is of recent provenance.[69] As we discussed above, the antitrust relevance of information such as OSHA complaints is dubious or, at least, unclear. It may be that the agencies will, in time, develop sufficient experience with these aspects of merger cases to justify labor-related changes to the HSR rules. At present, however, the information proposed to be required seems better suited to a research proposal—perhaps under the FTC’s study authority under Section 6(b) of the FTC Act—than it does to a regulatory requirement.

The changes to the premerger notification requirements would be significant. Perhaps the simplest metric to capture the scope of these changes is the FTC’s own estimate of compliance costs. With the current HSR premerger notification form, the FTC estimates that aggregate annual HSR compliance costs are approximately $120 million. Under the new requirements, the FTC estimates this would increase by approximately $350 million, to more than $470 million per year.[70] This exceeds the entire 2023 antitrust budget for the FTC and DOJ combined.[71]

A.          The Premerger Notification Form Risks Challenge as Arbitrary and Capricious

As an initial matter, the proposed changes clearly run contrary to legislative intent. As Chair Khan has herself noted, Congress expected only the 150 largest mergers each year would require notification to the agencies,[72] but the agencies today review several thousand reported transactions annually.[73] Former U.S. Rep. Peter Rodino, one of the authors of the HSR Act, anticipated that premerger notification would not entail the creation of new information and that compliance should not routinely delay consummation of deals.[74] Similarly, a “need to avoid burdensome notification requirements or fruitless delays”[75] was noted in the Senate. At least arguably, many of the NPRM’s proposed changes fail on all of these fronts.

Changes to the premerger notification process would carry to the force of law. So long as they are not arbitrary or capricious—and, usually, a failure to abide by the legislative history would not, in and of itself, surmount this bar—such changes are binding on parties to a merger. The hallmarks of arbitrary or capricious agency action were explained by the Supreme Court in State Farm:

Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.[76]

While the statute confers considerable discretion on the agencies’ implementation of the HSR Act’s amendments to the Clayton Act, that discretion is not unbounded. Indeed, there is good reason to believe that courts are likely to find many of the NPRM’s proposed changes to be arbitrary and capricious. The Act expressly limits the agencies to requiring production of information that is “relevant to a proposed acquisition as is necessary and appropriate . . . to determine whether such acquisition may, if consummated, violate the antitrust laws.”[77] And this text must be read in conjunction with the statutory authority to make second requests that “require the submission of additional information or documentary material relevant to the proposed acquisition.”[78] Moreover, any rules must be “consistent with the purposes of this section”—that is, to allow the antitrust agencies an opportunity to review significant mergers prior to their consummation to avoid the “unscrambling the egg” problem.

The statutory authority raises many textual questions. What constitutes “necessary” and “appropriate” information? And what does it mean for these words to be joined by the conjunction “and”? What is the extent of the limitation that information be “relevant to the proposed acquisition”? Is the “purpose of the section” limited to merger-related antitrust concerns, or more expansively related to the violation of any antitrust laws that might result from consummation of the transaction?[79] Each of these specify factors that Congress did or did not intend the agencies to consider or that may or may not be important aspects of the problem that Congress empowered the agencies to address.

Consider, for instance, what it means for materials to be “relevant to a proposed acquisition.” A natural reading would limit this to the materials that firms gathered in evaluating the transaction; and the submission of such extant materials would meet the ordinary meaning of “production” in a litigation context. The NPRM would expand the universe of relevant materials, including potentially anything that might inform a determination of the transaction’s legality. Courts are likely to say that the limit must be narrower than anything the agencies think potentially relevant to request.[80]

For example, the proposed rules would require disclosure of information about OSHA findings against the parties, on the theory that OSHA violations correlate with labor-market power. But as noted above, OSHA data suggest that the most common violations occur in industries that are minimally concentrated (e.g., construction). Similarly, the proposed rules would require parties to provide detailed information about the number of employees in broad categories working in overlapping commuting zones.[81] Such information might be useful in evaluating the competitive effects of a transaction,[82] but that utility is unclear. Furthermore, the information is not of a sort, or in a format, that parties to a merger are likely to compile in the ordinary course of business, or to aid themselves in deciding whether to pursue a merger. That is, from the parties’ perspective, this information would likely be irrelevant to a proposed acquisition, even if it might be relevant to the agencies’ evaluation of the effects of the proposed acquisition.

The point is underscored when considering the meaning of “necessary and appropriate.” As an initial matter—and echoing the concerns about information’s relevance to a proposed transaction— “appropriateness” could be determined with respect to purpose; that is, whether it is appropriate for the agencies to use the premerger notification process as a tool for developing novel theories of antitrust law or, in the alternative, whether it should be limited to screening for transactions that would violate established antitrust precedent under established methods.

“Necessary and appropriate” suggests an even more stringent constraint when read together. The availability of, and broad latitude afforded, second requests—among other tools, such as voluntary requests and “pull-and-refiles”—suggests that relatively little be required as part of the initial premerger notification. Indeed, without “and appropriate,” nothing would be required of a filing in the strict sense of “necessary,” as anything necessary might be gathered through a second request. Additional information is appropriate because it is both necessary to the process as a whole and appropriate to an initial filing by parties in general; that is, among other things, that it is not merger-specific information more efficiently gathered and screened with a proper subset of filers.

In addition, the burdens of required filing information (including those imposed by the HSR form) must be considered in light of the fact that the vast majority of mergers have not been deemed to raise competition concerns. Specifically, only 2% of all mergers subject to premerger notification receive second requests; and a second requests is not a complaint, much less a final decision that a proposed merger would be unlawful. That is, in considering the balance of what is reasonable and necessary, the agencies must be mindful of the fact that material required by HSR notification is a burden imposed on roughly 50 times the number of transactions as those deemed—in the agencies’ own judgment—to warrant a second request.

B.   Problematic Premerger Notification Rules Might Escape Challenge

Were issues like these to be raised in a challenge to the premerger notification process, the outcome may be hard to predict, but a court could well decide against the agencies. Still, there is reason to worry, independent of the question of such a challenge in the courts. The costs of the premerger notification process act as a tax on transactions. And as a tax, it is a regressive one, most likely felt by firms considering transactions on the margin of the HSR-reporting thresholds. These may disproportionately affect firms that, while large enough to be subject to notification, are relatively small or relatively infrequent filers.

That points to a question about the relative burdens and benefits of the proposed changes, but it also suggests a question regarding when, or even whether, overly burdensome regulations are likely to be challenged in court. Because the burdens of the tax are spread across the thousands of firms engaged in HSR-reportable transactions each year, no single firm—or pair of firms—would have an incentive even remotely close to the economic cost of the rules; or to put it another way, because the costs of the rule would be spread over thousands of transactions, the incentives for any given firm (or pair of firms) to challenge the requirements would be a very small fraction of the economic burdens of the requirement as a whole.

While that might seem an advantage to the agencies—at least insofar as the agencies might be concerned about litigation risk—it is not an advantage to efficient rulemaking or, specifically, to rules that provide for effective premerger screening without placing undue burdens on procompetitive or benign transactions.

In brief, the tax imposed by the new process would be imposed across a very large number of lawful mergers, including (and, very largely, comprising) mergers that would benefit both competition and consumers. As a regressive tax, it would also likely have an outsized effect on transactions at the margin of the HSR-reporting thresholds; and these may be those transactions least likely to raise competition concerns or lead to an agency challenge.

VII.   Conclusion

Certain proposed changes to the HSR-reporting rules and form may be necessary. For example, the NPRM’s proposed changes to Part 801.1 of the HSR rules appears to be a reasonable implementation of the 2022 statutory amendments to the Clayton Act that require the disclosure of subsidies from nations or entities that Congress has identified as “foreign entities of concern.”[83]

In addition, as we have also discussed, the NPRM’s proposal to amend Part 803 to require electronic filing[84] will likely be salutary, especially with the successful implementation of an e-filing platform that, according to the NPRM, is under development.[85] Electronic production and merger screening is in widespread use already, and more comprehensive adoption and standardization of electronic filing should help streamline premerger screening for both filers and the agency staff charged to review filings.

Many other proposals in the NPRM would greatly increase compliance costs for merging parties generally, with disproportionate impact on small and first-time filers. They would, not incidentally, also impose additional burdens on the agency staff who are charged to screen such mergers. Yet the screening value of much of the information is entirely unclear. For example, the NPRM proposes to require the production of considerable information about violations of labor regulations—such as OSHA regulations regarding worker safety—that have no evident connection (or even correlation) with highly concentrated product or labor markets, much less a demonstrated connection with harm to competition and consumers. Similarly, the utility of new information bundling industry “overlaps” based on six-digit occupational codes (not labor markets) and Department of Commerce “commuting zones” (not necessarily the geographic component of labor markets, either) is unclear.

Further enforcement experience with labor-market competition matters, and further empirical investigation, could develop such that the inclusion of additional labor information in the filing requirements would be reasonable and necessary. But such developments should precede, not follow, the formulation and imposition of such requirements. In the absence of such developments, it seems highly unlikely that the costs of the new requirements would be offset by countervailing benefits to competition and consumers.

By the NPRM’s own estimate, those costs are substantial. And the NPRM’s estimate seems extremely low, given the considerable time that senior executives and firm counsel would need to devote to compliance. Moreover, the costs of the new rules would work as a regressive tax, tending to chill mergers by smaller and less frequently transacting firms. Most of the mergers chilled by such costs would likely be—like the vast majority of mergers—either procompetitive or benign. Impeding them would thus be to the detriment—not the protection—of competition and consumers.

Finally, such costs would be imposed on all firms required to file HSR notifications, notwithstanding other means of gathering screening information, and notwithstanding that fewer than 2% of reported transactions lead even to a “second request.” Given the high and skewed costs of the proposals, and given the statutory charge to collect only information that is necessary and reasonable, many of the proposed changes seem not only unnecessary, cumbersome, and costly, but in excess of the rulemaking authority conferred by the HSR Act’s amendments to the Clayton Act.

For these reasons, we urge the commission to consider seriously the evidentiary bases of its proposed changes to the HSR rules and to scale back its proposal accordingly.

 

[1] Premerger Notification Rules, 88 Fed. Reg. 42178 (RIN 3084-AB46), proposed Jun. 29, 2023) (to be codified at 16 C.F.R. Parts 801 and 803) [hereinafter “NPRM”].

[2] See generally, e.g., William E. Kovacic & Carl Shapiro, Antitrust Policy: A Century of Economic and Legal Thinking, 14 J. Econ. Persp. 43 (2000).

[3] Statement of Chair Lina M. Khan, Commissioner Rohit Chopra, and Commissioner Rebecca Kelly Slaughter on the Withdrawal of the Vertical Merger Guidelines, Fed. Trade Comm’n, Commission File No. P810034 (Sep. 15, 2021), available at https://www.ftc.gov/system/files/documents/public_statements/1596396/statement_of_chair_lina_m_khan_commissioner_rohit_chopra_and_commissioner_rebecca_kelly_slaughter_on.pdf (citing Open Markets Inst. et al., Comment Letter No. 31 on #798: Draft Vertical Merger Guidelines (“Draft VMGs”), Matter No. P810034 at 4 (Feb. 2020)).

[4] 15 U.S.C. § 18a(d)-(e).

[5] Id. at (d)(1).

[6] 15 U.S.C. § 46(b).

[7] Draft Merger Guidelines, U.S. Dep’t Justice & Fed. Trade Comm’n, Document No. FTC-2023-0043-0001 (Jul. 19, 2023), https://www.regulations.gov/document/FTC-2023-0043-0001. For comments on the draft merger guidelines see, e.g., Comment from International Center for Law & Economics, FTC-2023-0043-1555 (Sep. 18, 2023), https://www.regulations.gov/comment/FTC-2023-0043-1555; Comments of Economists and Lawyers on the Draft Merger Guidelines, FTC-2023-0043-1406 (Sep. 15, 2023), https://www.regulations.gov/comment/FTC-2023-0043-1406; Comment from Gregory J. Werden, FTC-2023-0043-0624 (Aug. 12, 2023), https://www.regulations.gov/comment/FTC-2023-0043-0624; Comment from Professor Carl Shapiro, FTC-2023-0043-1393 (Sep. 14, 2023), https://www.regulations.gov/comment/FTC-2023-0043-1393; Comment from Global Antitrust Institute, FTC-2023-0043-1397 (Sep. 14, 2023), https://www.regulations.gov/comment/FTC-2023-0043-1397; Comment from Compass Lexecon, FTC-2023-0043-1518 (Sep. 18, 2023), https://www.regulations.gov/comment/FTC-2023-0043-1518; Comment from Herbert Hovenkamp, FTC-2023-0043-1280 (Sep. 8, 2023), https://www.regulations.gov/comment/FTC-2023-0043-1280.

[8] Id.

[9] Or 15 days, in the case of tender offers. 15 U.S.C. § 18(b)(1)(B), (e)(1)(A).

[10] See, e.g., Lina Khan, Chair, FTC and Jonathan Kanter, Asst. Atty. Gen., Antitrust Div., Hart-Scott-Rodino Annual Report, Fiscal Year 2021, 4 (2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/p110014fy2021hsrannualreport.pdf.

[11] 15 USC § 18a(e)(1)(A); Cf., Hart-Scott-Rodino Annual Report, Fiscal Year 2021, Appendix A, U.S. Dep’t Justice & Fed. Trade Comm’n (2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/p110014fy2021hsrannualreport.pdf (summary of reported transactions by fiscal year, 2012-2021, showing, inter alia, percentage of filings leading to second requests).

[12] 15 USC § 18a(e)(2).

[13] See, e.g., Statement of Representative Rodino, Merger Oversight and H.R. 13131, Providing Premerger Notification and Stay Requirements, Subcomm. on Monopolies and Commercial Law of the Comm. on the Judiciary (Mar. 10, May 6 and 13, 1976) (“Both agencies can, and will, tell us what we have known for years—you can’t unscramble an egg.”).

[14] See Statement of Federal Trade Commission Chair Khan, Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro M. Bedoya, Regarding Proposed Amendments to the Premerger Notification Form and the Hart-Scott-Rodino Rules, at 2 (Jun. 27, 2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/statement_of_chair_khan_joined_by_commrs_slaughter_and_bedoya_on_the_hsr_form_and_rules_-_final_130p_1.pdf.

[15] Id.; see also Annual Reports to Congress Pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Fed. Trade Comm’n (2021), https://www.ftc.gov/policy/reports/annual-competition-reports.

[16] E.g., Joe Simms, The Effect of Twenty Years of Hart-Scott-Rodino on Merger Practice: A Case Study in the Law of Unintended Consequences Applied to Antitrust Legislation, 65 Antitrust L.J. 865 (1997).

[17] The FTC’s introductory guide to the premerger process, for instance, says of the process that: “The Program has been a success.” What is the Premerger Notification Program? An Overview, Fed. Trade Comm’n (Mar. 2009), available at https://www.ftc.gov/sites/default/files/attachments/premerger-introductory-guides/guide1.pdf. This is not to say that the program is without critics or criticism. The initial implementation, for instance, did not index reporting thresholds to inflation. By the year 2000, nearly 5,000 transactions were noticed each year. The HSR Act was subsequently amended to index thresholds to inflation. Today, roughly 2,000 transactions are noticed each year (allowing for some variation during the pandemic). See Fed. Trade Comm’n, supra note 22, available at https://www.ftc.gov/system/files/ftc_gov/pdf/p110014fy2021hsrannualreport.pdf. See also Report of the Antitrust Modernization Committee, 158 (“the existing pre-merger review system under the HSR Act is achieving its intended objectives of providing a more effective means for challenging mergers raising competitive concerns before their consummation and protecting consumers from anticompetitive effects.”), available at https://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf.

[18] Andrew G. Howell, Why Premerger Review Needed Reform-and Still Does, 43 Wm. & Mary L. Rev. 1703, 1716 (2002) (“There are several key points to draw from this legislative history. First, the premerger title of the Act was meant only to make the procedural change of requiring notification—it was not meant to change substantive law. Second, the provision was intended to encompass only the very largest of mergers. Finally, there was concern in Congress about not allowing pursuit of merger enforcement goals to place too much of a burden on commerce.”)

[19] Premerger Notification; Reporting and Waiting Period Requirements, 85 Fed. Reg. 77042, 77055 (RIN 3084-AB46), proposed Dec. 1, 2020 (to be codified at 16 C.F.R. Parts 801, 802, and 803)

[20] Hart-Scott-Rodino Annual Report, Fiscal Year 2021, supra note at 1-2.

[21] Id. at Appendix (A summary of reported transactions by fiscal year, 2012-2021, showing, inter alia, percentage of filings leading to second requests).

[22] The difference may, of course, be greater still, given the nature of a second request. Based on the initial filing and follow-up information, the agencies have very broad discretion in seeking additional production via a second request; at the same time, we understand that staff tend not to request additional information by rote, but according to merger-specific concerns and queries.

[23] Antitrust Experts Reject FTC/DOJ Changes to Merger Process, U.S. Chamber of Commerce (Sep. 19, 2023), https://www.uschamber.com/finance/antitrust/antitrust-experts-reject-ftc-doj-changes-to-merger-process. The surveyed group was made up seasoned antitrust veterans from across a variety of backgrounds: 80% had been involved in more than 50 mergers and 59% in more than 100.

[24] Id. at 2.

[25] Id. at 3.

[26] NPRM at 42208.

[27] We note, however, that both the NPRM and the draft merger guidelines suggest a greatly expanded notion of “overlaps,” adding to the likely costs to filers and, not incidentally, burden to reviewing staff.

[28] See, e.g., HSR Statements of Basis and Purpose, FTC Legal Library, https://www.ftc.gov/legal-library/browse/hsr-statements-basis-purpose (last checked Sep. 23, 2023).

[29] For example, year 2000 amendments to the HSR Act required annual publication of adjustments to the Act’s jurisdictional and filing-fee thresholds in the Federal Register for each fiscal year, beginning Sept. 30, 2004, based on change in the gross national product, in accordance with Section 8(a)(5) of the Clayton Act.

[30] Revised Jurisdictional Thresholds, 88 Fed. Reg. 5004 (Jan. 26, 2023).

[31] Revised Jurisdictional Thresholds for Section 7A of the Clayton Act, 87 Fed. Reg. 3541 (Jan. 24, 2022).

[32] Revised Jurisdictional Thresholds for Section 7A of the Clayton Act, 86 Fed. Reg. 7870 (Feb. 2, 2021).

[33] Premerger Notification; Reporting and Waiting Period Requirements, 85 Fed. Reg. 77042 (RIN 3084-AB46), proposed Dec. 1, 2020 (to be codified at 16 C.F.R. Parts 801, 802, and 803).

[34] NPRM at 42180-81 (discussing provisions of the Merger Filing Fee Modernization Act of 2022, Pub. L. 117-328, 136 Stat. 4459 (2022), Div. GG.).

[35] Id.

[36] NPRM at 42181.

[37] Id. at 42180.

[38] Id. at 42181.

[39] Antitrust Improvements Act Notification and Report Form for Certain Mergers and Acquisitions: Instructions, available at https://www.ftc.gov/system/files/ftc_gov/pdf/HSRFormInstructions02.27.23.pdf.

[40] NPRM at 42191.

[41] David C. Kully, et al., Killing Deals Softly: FTC Proposes 107-Hour Increase in Hart-Scott-Rodino Burden, Holland & Knight Alert (Jun. 28, 2023), https://www.hklaw.com/en/insights/publications/2023/06/killing-deals-softly-ftc-proposes-107-hour-increase.

[42] NPRM at 42193

[43] Id. at 42196.

[44] Id. at 42197.

[45] Id. at 42196-42197.

[46] Id. at 42197.

[47] 15 U.S.C. § 18a(e)(1)-(2).

[48] Statement of Commissioner Alvaro M. Bedoya, Joined by Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter Regarding the Proposed Merger Guidelines, U.S. Dep’t Justice & Fed. Trade Comm’n (Jul. 19, 2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/p234000_merger_guidelines_statement_bedoya_final.pdf (internal citations omitted, but including a reference to FTC, Non-HSR Reported Acquisitions by Select Technology Platforms, 2010-2019 (Sept. 15, 2021), https://www.ftc.gov/reports/non-hsr-reported-acquisitions-select-technology-platforms-2010-2019-ftc-study.)

[49] Id. at 3.

[50] Ginger Zhe Jin, Mario Leccese, & Liad Wagman, How Do Top Acquirers Compare in Technology Mergers? New Evidence from an S&P Taxonomy, 89 J. Indus. Org. (2023), https://www.sciencedirect.com/science/article/abs/pii/ S0167718722000662.

[51] Id.

[52] NPRM at 42197.

[53] Id. at 42197-98.

[54] Id.

[55] Id. at 42198.

[56] NPRM at 42198, 42215.

[57] Id.

[58] Id.

[59]  Top 10 Most-cited Standards for Fiscal Year 2022, U.S. Dep’t Labor, Occupational Safety & Health Admin., https://www.osha.gov/top10citedstandards. The source page includes a link to a searchable database of Frequently Cited OSHA Standards by industry.

[60] 15 U.S.C. § 18a.

[61] Id.

[62] 15 U.S.V. § 18a(d).

[63] 5 U.S.C. § 553.

[64] Id.

[65] Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983).

[66] See A Guide to the Rulemaking Process, Office of the Federal Register (Jan. 2011), available at https://www.federalregister.gov/uploads/2011/01/the_rulemaking_process.pdf. In addition, regulations may be constitutionally infirm.

[67] The FTC’s 2023 budget request for antitrust enforcement (“Promoting Competition”) was $239,613,000. See Fiscal Year 2023 Congressional Budget Justification, Fed. Trade Comm’n (Mar. 28, 2022), available at https://www.ftc.gov/system/files/ftc_gov/pdf/P859900FY23CBJ.pdf. The Department of Justice’s similar request 2023 appropriation was $225,000,000. See Appropriation Figures for The Antitrust Division, Fiscal Years 1903-2023, Dep’t of Just., Antitrust Div (Feb. 2023), https://www.justice.gov/atr/appropriation-figures-antitrust-division.

[68] Id. at 42198.

[69] To demonstrate the need for information about labor market conditions in evaluating mergers, the NPRM identifies only two recent (2021 and 2022) decisions by the agencies to bring actions against firms that include labor-market concerns. Id. at 42197.

[70] NPRM at 42208 (“the total estimated additional hours burden is 759,272. . . . Applying the revised estimated hours, 759,272, to the previous assumed hourly wage of $460 for executive and attorney compensation, yields approximately $350,000,000 in labor costs.”).

[71] The FTC’s 2023 budget request for antitrust enforcement (“Promoting Competition”) was $239,613,000. See Fed. Trade Comm’n, Fiscal Year 2023 Congressional Budget Justification, https://www.ftc.gov/system/files/ftc_gov/pdf/P859900FY23CBJ.pdf. The Department of Justice’s similar request 2023 appropriation was $225,000,000. See Dep’t of Just., Antitrust Div., Appropriation Figures for The Antitrust Division, Fiscal Years 1903-2023 (Feb. 2023), https://www.justice.gov/atr/appropriation-figures-antitrust-division.

[72] See Statement of Federal Trade Commission Chair Khan, supra note 15, at 2.

[73] See Hart-Scott-Rodino Annual Report, Fiscal Year 2021, supra note 11, at 1 (noting 3,520 transactions for fiscal year 2021).

[74] Rep. Rodino himself indicated: “Government requests for additional information must be reasonable. [. . .] the Government will be requesting the very data that is already available to the merging parties, and has already been assembled and analyzed by them. If the merging parties are prepared to rely on it, all of it should be available to the Government. But lengthy delays and extended searches should consequently be rare.”

[75] S. Rep. No. 94-803, pt. 1, at 65, 67 (1976) (“A proper balance should exist between the needs of effective enforcement of the law and the need to avoid burdensome notification requirements or fruitless delays.”)

[76] 463 U.S. at 43.

[77] 15 U.S.C. § 18a(d).

[78] Id. at § 18a(e)(1).

[79] Strictly merger-related concerns would be limited to those that violate Section 7 of the Clayton Act (that is, consummation of transactions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”) Other concerns that might result from the transaction, such as an interlocking directorate prohibited by Section 8 of the Clayton Act, might therefore be excluded.

[80] See, e.g., AT&T Corp. v. Iowa Utils Bd, 525 U.S. 1133 (1999) (“the Act requires the FCC to apply some limiting standard, rationally related to the goals of the Act, which it has simply failed to do.”)

[81] NPRM at 42198.

[82] Given the coarseness of the data requested, it is doubtful whether it would be analytically useful for such purposes.

[83] NPRM at 42180-81.

[84] Id. at 42181.

[85] Id. at 42180.

The FTC—joined (unfortunately) by 17 state attorneys general—on Sept. 26 filed its much-anticipated antitrust complaint against Amazon in the U.S. District Court for the Western District of Washington. Lacking all sense of irony, Deputy Director Newman, quoted above, bragged about the case’s potential to do greater good than almost all previous antitrust lawsuits.

Read the full piece here.

ICLE Director of Law & Economics Programs Gus Hurwitz was a guest on The Cyberlaw Podcast, where he discussed the U.S. Justice Department’s recently initiated trial against Google and a pair of cases brought by the Federal Trade Commission against Amazon. Audio of the full episode is embedded below.

The Federal Trade Commission and 17 states have filed a high-profile antitrust lawsuit against Amazon that could force major changes to the popular Amazon Prime service — which would be bad news for its 167 million American members.

Read the full piece here.

There is much in the Federal Trade Commission’s (FTC) record over the past two years that could be categorized as abnormal. There is, for instance, nothing “normal” about using the threat of excessive force to cower businesses into submission. Introducing sky high costs for the filing of mergers isn’t normal, as it will scare away merging parties. These are attempts at regulation by intimidation.

Read the full piece here.

The Federal Trade Commission (FTC) and U.S. Labor Department (DOL) signed a memorandum of understanding (MOU) this past week “to strengthen the Agencies’ partnership through greater cooperation and coordination in information sharing, investigations and enforcement activity, training, education, research, and outreach.” The accompanying Sept. 21 announcement is another example of FTC overreach, as it highlights matters that simply are not part of the agency’s mission.

Read the full piece here.

Introduction

We appreciate the opportunity to comment on some of the changes made by the Competition (the Amendment) Act, 2023 (Amendment Act) to India’s Competition Act of 2002 (the Act).

The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, global research and policy center—based in Portland. Oregon, United States—founded to build the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies, and economic findings, to inform public policy. More specifically, ICLE and its affiliate scholars have written extensively about competition and merger policy and routinely engage with policymakers and academics across the globe on these issues.

The Amendment raises several important issues, but our comments focus on the new notification criteria for M&A deals. The Amendment adds a new notification threshold to Section 5 of the Act, which outlines when parties need to notify their merger to the Competition Commission of India. Under the new Section 5 (d), parties must notify a transaction when:

“(d) value of any transaction, in connection with acquisition of any control, shares, voting rights or assets of an enterprise, merger or amalgamation exceeds rupees two thousand crore:

Provided that the enterprise which is being acquired, taken control of, merged or amalgamated has such substantial business operations in India as may be specified by regulations.[1]

These new thresholds appear designed to catch certain startup acquisitions that would otherwise escape merger review because the target firm has little to no turnover or assets. In other words, the amendment adds a new threshold that aims to ensure potential “killer acquisitions” are reviewed by enforcers.

But while attempting to catch transactions that may harm consumers is commendable, it is important to understand the important tradeoffs that ensue. Policing mergers is anything but costless and any change in merger policy should consider both the benefits and the costs. Agencies will need to devote time and resources to assess mergers that previously were waved through without review. In turn, absent significantly more resources, this will reduce the review time devoted to the most problematic deals. Looking outside the agency, it will also increase the cost of mergers for parties, thereby chilling all deals, even procompetitive deals.

Our comment analyzes these tradeoffs in more detail, ultimately concluding that lower merger=filing thresholds may be inappropriate when viewed through the lens of the error-cost framework. Section I puts the Amendment in a global context, explaining the impetus for and weakness of attempts to bolster merger enforcement around the world. Section II outlines some of the implications of the error-cost framework for merger policy. Section III concludes by putting forward four questions that policymakers should ask themselves when they amend merger-enforcement law and policy.

I.        The Global Crackdown on Mergers

The antitrust policy world has fallen out of love with corporate mergers. After decades of relatively laissez-faire enforcement, spurred in part by the emergence of Chicago school of economics,^[2] a growing number of policymakers and scholars are calling for tougher rules to curb corporate acquisitions. But these appeals are premature. There is currently little evidence to suggest that mergers systematically harm consumer welfare. More importantly, scholars fail to identify alternative institutional arrangements that could capture the anticompetitive mergers that evade prosecution without disproportionate false positives and administrative costs. Their proposals thus fail to meet the requirements of the error-cost framework.

Taking a step back, there are multiple reasons for the antitrust community’s about-face. These include concerns about rising market concentration,^[3] labor-market monopsony power,^[4] and of large corporations undermining the very fabric of democracy.^[5] But of these numerous (mis)apprehensions, one has received the lion’s share of scholarly and political attention: a growing number of voices argue that existing merger rules fail to apprehend competitively significant mergers that either fall below existing merger-filing thresholds or affect innovation in ways that are, allegedly, ignored by current rules. For instance, Rohit Chopra, a former commissioner at the US Federal Trade Commission, asserted that too many transactions avoid antitrust scrutiny by falling through the cracks of HSR premerger notification thresholds. For instance, Rohit Chopra, a former commissioner at the U.S. Federal Trade Commission, asserted that too many transactions avoid antitrust scrutiny by falling through the cracks of the Hart-Scott-Rodino Act’s premerger-notification thresholds. As a result, Chopra claimed, “[t]he FTC ends up missing a large number of anticompetitive mergers every year.”^[6]

These fears are particularly acute in the pharmaceutical and tech industries, where several high-profile academic articles and reports claim to have identified important gaps in current merger-enforcement rules, particularly with respect to acquisitions involving nascent and potential competitors.^[7] Some of these gaps are purported to arise in situations that would normally appear to be procompetitive:

Established incumbents in spaces like tech, digital payments, internet, pharma and more have embarked on bids to acquire features, businesses and functionalities to shortcut the time and effort they would otherwise require for organic expansion. We have traditionally looked at these cases benignly, but it is now right to be much more cautious.^[8]

As a result of these perceived deficiencies, scholars and enforcers have called for tougher rules, including the introduction of lower merger filing thresholds—similar to what is currently proposed with regard to India’s proposed reform of its merger rules—and substantive changes, such as the inversion of the burden of proof when authorities review mergers and acquisitions in the digital platform industry.^[9] As a result of these perceived deficiencies, scholars and enforcers have called for tougher rules, including the introduction of lower merger-filing thresholds—similar to what has been put forward in India’s proposed reform of its merger rules—and substantive changes, such as the inversion of the burden of proof when authorities review mergers and acquisitions in the digital-platform industry.^[10] Meanwhile, and seemingly in response to the increased political and advocacy pressures around the issue, U.S. antitrust enforcers have recently undertaken several enforcement actions directly targeting such acquisitions.^[11] Meanwhile, and seemingly in response to the increased political and advocacy pressures around the issue, U.S. antitrust enforcers have recently undertaken several enforcement actions that directly target such acquisitions.^[12]

These proposals, however, tend to overlook the important tradeoffs that would ensue from attempts to decrease the number of false positives under existing merger rules and thresholds. While merger enforcement ought to be mindful of these possible theories of harm, the theories and evidence are not nearly as robust as many proponents suggest. Most importantly, there is insufficient basis to conclude that the costs of permitting the behavior they identify is greater than the costs would be of increasing enforcement to prohibit it.^[13]

In this regard, two key strands of economic literature are routinely overlooked (or summarily dismissed) by critics of the status quo.

For a start, as Judge Frank Easterbrook argued in his pioneering work on The Limits of Antitrust, antitrust enforcement is anything but costless.^[14] In the case of merger enforcement, not only is it expensive for agencies to detect anticompetitive deals but, more importantly, overbearing rules may deter beneficial merger activity that creates value for consumers. Indeed, not only are most mergers welfare-enhancing, but barriers to merger activity have been shown to significantly, and negatively, affect early company investment.^[15]

Second, critics are mistaking the nature of causality. Scholars routinely surmise that incumbents use mergers to shield themselves from competition. Acquisitions are thus seen as a means to eliminate competition. But this overlooks an important alternative. It is at least plausible that incumbents’ superior managerial or other capabilities (i.e., what made them successful in the first place) make them the ideal purchasers for entrepreneurs and startup investors who are looking to sell.

This dynamic is likely to be amplified where the acquirer and acquiree operate in overlapping lines of business. In other words, competitive advantage, and the ability to profitably acquire other firms, might be caused by business acumen rather than exemplifying anticompetitive behavior. And significant and high-profile M&A activity involving would-be competitors may thus be the procompetitive byproduct of a well-managed business, rather than anticompetitive efforts to stifle competition.

Critics systematically overlook this possibility. Indeed, Henry Manne’s seminal work on Mergers and Market for Corporate Control^[16]—the first to argue that mergers are a means of applying superior management practices to new assets—is almost never cited by contemporary researchers in this space. Our comments attempt to set the record straight.

With this in mind, we believe that calls to reform merger enforcement rules and procedures should be analyzed under the error-cost framework. With this in mind, we believe that calls to reform merger-enforcement rules and procedures should be analyzed under the error-cost framework. Accordingly, the challenge for policymakers is not merely to minimize type II errors (i.e., false acquittals), which have been a key area of focus for recent scholarship, but also type I errors (i.e., false convictions) and enforcement costs. This is particularly important in the field of merger enforcement, where authorities need to analyze vast numbers of transactions in extremely short periods of time.

In other words, while scholars have raised valid concerns, they have not suggested alternative institutional arrangements to address them that would lead to better overall outcomes. In other words, while scholars have raised valid concerns, they have not suggested alternative institutional arrangements to address those concerns that would lead to better overall outcomes. All legal enforcement systems are imperfect, and it is not enough to justify changes to the system that some imperfections can be identified.^[17] Indeed, it could be that antitrust doctrine currently condones practices that harm innovation, but that there is no cost-effective way to reliably identify and deter this harmful conduct.

For instance, as we discuss below, a recent paper estimates that between 5.3% and 7.4% of pharmaceutical mergers are “killer acquisitions.”^[18] But even if that is accurate, it suggests no tractable basis on which those acquisitions can be differentiated ex ante from the 92.6% to 94.7% that are presumed to be competitively neutral or procompetitive. A reformed system that overly deters these acquisitions in order to capture more of the problematic ones—which is presumably the purpose of the merger-related amendments in the 2023 Competition Act— is not necessarily an improvement.

Further, while many of the arguments suggesting that the current system is imperfect are well-taken, these claims of systemic problems are not always as robust as proponents suggest. This further weakens the case for policy reform, because any potential gains from such reforms are likely far less certain than they are often claimed to be.

II.      Antitrust and the Error-Cost Framework

Firms spend trillions of dollars globally every year on corporate mergers, acquisitions, and R&D investments.^[19] Most of the time, these investments are benign, often leading to cost reductions, synergies, new or improved products, and lower prices for consumers.^[20] For smaller firms, the possibility of being acquired can be vital to making a product worth developing.

There are also instances, however, when M&A activity enables firms to increase their market power and reduce output. Therein lies the fundamental challenge for antitrust authorities: among these myriad transactions, investments, and business decisions, is it possible to effectively sort the wheat from the chaff in a way that leads to net improvements in efficiency and competition, and ultimately consumer welfare? In more concrete terms, the question is: are there reasonable rules and standards that enforcers can use to filter out anticompetitive practices while allowing beneficial ones to follow their course? And if so, can this be done in a timely and cost-effective manner?^[21]

A.      The Use of Filters in Antitrust

What might appear to be a herculean task has, in fact, been considerably streamlined, and vastly improved, by the emergence of the error-cost framework, itself a byproduct of pioneering advances in microeconomics and industrial organization.^[22] This is “the economists’ way out.”^[23] The error-cost framework is designed to enable authorities to focus their limited resources on that conduct most likely to have anticompetitive effects. In practice, this is done by applying several successive filters that separate potentially anticompetitive practices from ones that are likely innocuous.^[24] Depending on this initial classification, practices are then submitted to varying levels of scrutiny, which may range from per se prohibitions to presumptive legality.^[25]

Of the thousands of M&A transactions each year, only a few must be notified to antitrust authorities, and fewer still are subject to in-depth reviews.^[26] For instance, in both the United States and the European Union, only deals that meet certain transaction values and/or revenue thresholds require merger notifications.^[27] Accordingly, U.S. antitrust authorities receive somewhere in the vicinity of 2,000 merger filings per year, while the European Commission usually receives a few hundred.^[28] Typically, less than 5% of these mergers are ultimately subjected to in-depth reviews.^[29] These cases are selected by applying yet another set of filters that include: looking at the relationship between the merging firms (horizontal, vertical, conglomerate); calculating market shares and concentration ratios; and checking whether transactions fall within several recognized theories of harm.^[30]

Similar filtering mechanisms apply to other forms of conduct. Incumbent firms routinely decide to enter adjacent markets, for instance, or to adopt strategies that might incidentally reduce competition in markets where they are already present. As with mergers, authorities and courts apply a series of filters/presumptions to home in on those practices most likely to cause anticompetitive harm.^[31] Firms with low market shares are deemed less likely to possess market power (and thus, less likely to harm competition); vertical agreements are widely seen as being less problematic than horizontal ones; and vertical integration is widely regarded as procompetitive, absent other accompanying factors.^[32]

This system is certainly not perfect; filtering cases in this manner inevitably lets some anticompetitive practices fall through the cracks. Indeed, the error-cost framework is premised on the recognition of this eventuality. Nevertheless, the strengths of this paradigm arguably outweigh its weaknesses. “If presumptions let some socially undesirable practices escape, the cost is bearable. . . . One cannot have the savings of decision by rule without accepting the costs of mistakes.”^[33]

In most jurisdictions around the world, today’s competition merger-control apparatus is administrable,^[34] somewhat predictable,^[35] and—in the case of merger enforcement—it ensures that deals are reviewed in a relatively timely manner.^[36]

The contours of this system have profound ramifications for substantive antitrust policy. Potential reforms need to account for the tradeoffs inherent to this vision of antitrust enforcement: between false positives and false negatives, between timeliness and thoroughness, and so on. Accordingly, the relevant policy question is not whether existing provisions allow certain categories of potentially harmful conduct to go unchallenged. Instead, policymakers should ask whether there is a better set of filters and heuristics that would enable authorities and courts to prevent previously unchallenged anticompetitive conduct without overburdening the system or disproportionately increasing false positives. In short, antitrust enforcers must avoid the so-called “nirvana fallacy” of believing that all errors can be eliminated, and existing policies should thus always be weighed against alternative institutional arrangements (as opposed to merely identifying instances where they lead to false negatives).^[37]

B.      Calls for a Reform of Merger-Enforcement Rules and Thresholds

Against this backdrop, a growing body of economic literature has identified potential inadequacies in both the U.S. and EU merger-control regimes, as well as the antitrust rules that govern the business practices of digital platforms (notably, vertical integration and tying).^[38] These critiques focus on ways in which incumbents might prevent nascent or potential rivals from introducing innovative new products and services that could disrupt their existing businesses. In short, this recent economic literature purports to show how incumbents might use their dominant market positions to reduce innovation.

For instance, recent empirical research purports to show that mergers of pharmaceutical companies with overlapping R&D pipelines result in higher project-termination rates, thus reducing innovation and, ultimately, price competition. These are referred to as “killer acquisitions.”^[39] Others have argued that killer acquisitions also occur in the tech sector, although the empirical evidence offered to support this second claim is much weaker. In large part, this is because it does not differentiate between legitimate, efficient discontinuations of acquired products (such as the product being unsuccessful on the market, or the acquisition being done to hire the staff of the acquired firm) and the elimination of potential competitors.^[40] Acquisitions of nascent and potential competitors undertaken with the intention of reducing competition have also been described as “killer acquisitions,” even if they do not involve their products being discontinued.^[41]

Along similar lines, it is sometimes argued that large tech firms create so-called “kill zones” around their core businesses.^[42] Similarly, some scholars assert that incumbent digital platforms might seek to foreclose rivals in adjacent markets by “copying” their products, or by using proprietary datasets that tilt the scales in their favor.^[43]

All of these practices are said to harm innovation by deterring the incentives of competitors to invest in innovations that compete with incumbents. And the overarching theme of the above research is that existing antitrust doctrine is ill-equipped to handle these practices—or, at the very least, that antitrust law should be enforced more vigorously in these settings.

But while the above research identifies important and potentially harmful conduct that cannot be dismissed out of hand, it is important to recognize its inherent limitations when it comes to informing normative policy decisions. Indeed, there is a vast difference between identifying categories of conduct that sometimes harm consumers, on the one hand, and being able to isolate individual instances of anticompetitive behavior, on the other (and even then, it is important to distinguish conduct that harms consumers overall from conduct that merely harms certain parameters of competition while improving others. In other words, antitrust law should prohibit conduct when the category it belongs to is generally harmful to consumers and/or when harmful occurrences of that conduct can readily be distinguished^[44]).

The above is merely a restatement of the error-cost framework, which highlights that the existence of false negatives is not a sufficient condition for increased intervention. The fact—if it can be proved—that there were some false negatives does not imply that there has been underenforcement with respect to the optimal level of enforcement. In other words, in the digital space, the argument can be made that an optimal merger policy on average leads to ex-post “underenforcement.” Moreover, even if the level of enforcement has been lower than optimal, one must be careful not to swing too far in the opposite direction, especially in high-tech industries. The chilling effect on innovation could be significant.^[45] Instead, any change to the standards of government intervention that seeks to prevent more of these false negatives, with all the accompany tradeoffs and risks inherent to this enterprise, must ultimately increases social welfare overall.

Take the example of Google. It has acquired at least 270 companies over the last two decades.^[46] It has been argued that some of these—such as Google’s acquisitions of YouTube, Waze, or DoubleClick—may have been anticompetitive. The real test for regulators, however, is whether they could reliably identify which of Google’s 270 acquisitions are actually anticompetitive and do so under a decision rule that causes less harm to consumers from false positives caused by the current (alleged) false negatives. If the anticompetitive mergers are such a tiny percentage of total mergers, and if identifying them a priori is difficult, then a precautionary-principle strategy that results in many false positives would likely not merit the benefits from blocking one or two anticompetitive mergers.

Indeed, but for Google and Facebook’s investments in YouTube and Instagram (to cite but two examples), it is far from clear that a mere “video-hosting service” or “photo-sharing app” would have grown into the robust competitor that advocates assume. Apart from the potential synergies arising from the combination of these products with the acquiring companies’ other products (for example, YouTube’s search and recommendation engines being developed by Google, the world’s leading internet-search company, or Instagram’s ad platform being integrated with Facebook’s), corporate control by the acquiring company may lead to these firms being better managed. This concept of M&A as creating a “market for corporate control” adds an important new dimension to the understanding of the tradeoffs involved.^[47]

These anticompetitive theories of harm can thus be separated into three broad categories: (1) large incumbents have become so dominant in their primary markets that venture capitalists decline to fund startups that compete head-on, reducing potential competition; (2) these incumbents acquire potential competitors or non-competitor startups so as to reduce the competition along several dimensions, and (3) that incumbents purchase competitors to shut down their overlapping innovation pipelines (i.e., killer acquisitions).

III.    Concluding Remarks

With this in mind, applying the error-cost framework should lead policymakers to carefully consider the following questions when evaluating the merits and policy implications of economic research in this space:

1. Do the papers advancing these theories identify categories of conduct that, on average, harm consumer welfare?
2. If not, do the papers identify additional factors that would enable authorities to infer the existence of anticompetitive effects in individual cases?
3. If so, would it be feasible for authorities to add these factors to their analysis (in terms of time and resources)?
4. Finally, would prohibiting these practices at an individual or category level prevent efficiencies that would otherwise outweigh these anticompetitive harms? And could these efficiencies be analyzed on a case-by-case basis?

In addition to these error-cost-related questions, it is also necessary to question whether the results of these studies are relevant outside of the specific markets that they examine, and whether they give sufficient weight to countervailing procompetitive justifications.

All of this has profound ramifications for amendments to India’s competition law. Lowering merger-filing thresholds may be counterproductive if it means fewer enforcement resources are devoted to other, more important cases. To make matters worse, heightened merger-control rules may deter firms from merging in the first place. This could have dramatic consequences for an economy like India’s, which depends on startup activity to remain on its current growth path. In short, we recommend that Indian policymakers carefully consider whether the possibility of catching an additional handful of anticompetitive mergers is worth the significant costs that would be incurred by the Indian economy.

 

 

[1] The Competition Act (2002), as modified by the 2023 Amendment, Section 5 (d).

[2] See, e.g., Jonathan B Baker, Recent Developments in Economics That Challenge Chicago School Views, 58 Antitrust L.J. 655 (1989) (“Over the past fifteen years, the courts and enforcement agencies have created Robert Bork’s antitrust paradise. Antitrust has adopted the Chicago School’s efficiency analysis and the Chicago School’s conclusions about the effects of business practices.”). Note that, in many ways, the Chicago and late-Harvard views are somewhat similar when it comes to mergers—both schools of thought might thus have influenced this loosening of merger policy. See, e.g., Richard A Posner, The Chicago School of Antitrust Analysis, U. Penn. L. Rev. 937 (1979) (“The change in thinking that has been brought about by the Chicago school is nowhere more evident than in the area of vertical integration. Kaysen and Turner, writing in 1959, advocated for- bidding any vertical merger in which the acquiring firm had twenty percent or more of its market. Areeda and Turner, writing in 1978, express very little concern with anticompetitive effects from vertical integration. In fact, as between a rule of per se illegality for vertical integration by monopolists and a rule of per se legality, their preference is for the latter.”).

[3] See, e.g., Germán Gutiérrez & Thomas Philippon, Declining Competition and Investment in the U.S., NBER Working Paper 1 (2017) (“The U.S. business sector has under-invested relative to Tobin’s Q since the early 2000’s. We argue that declining competition is partly responsible for this phenomenon.”). Contra, Esteban Rossi-Hansberg, Pierre-Daniel Sarte & Nicholas Trachter, Diverging trends in national and local concentration, 35 NBER Macroeconomics Annual 1 (2021) (“Using US NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least 7 years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration, and a likely more competitive local environment.”).

[4] See, e.g., José Azar, Ioana Marinescu, Marshall Steinbaum & Bledi Taska, Concentration in U.S. labor markets: Evidence From Online Vacancy Data, 66 Labour Economics 101886 (2020) (“These indicators suggest that employer concentration is a meaningful measure of employer power in labor markets, that there is a high degree of employer power in labor markets, and also that it varies widely across occupations and geography.”).

[5] See, e.g., Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age 9 (2018) (“We have managed to recreate both the economics and politics of a century ago—the first Gilded Age—and remain in grave danger of repeating more of the signature errors of the twentieth century. As that era has taught us, extreme economic concentration yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership. Yet, as if blind to the greatest lessons of the last century, we are going down the same path. If we learned one thing from the Gilded Age, it should have been this: The road to fascism and dictatorship is paved with failures of economic policy to serve the needs of the general public.”).

[6] Rohit Chopra, Statement of Commissioner Rohit Chopra, 85 Fed. Regis. 231, 77052 (2020) (“Adequate premerger reporting is a helpful tool used to halt anticompetitive transactions before too much damage is done. However, the usefulness of the HSR Act only goes so far. This is because many deals can quietly close without any notification and reporting, since only transactions above a certain size are reportable.”).

[7] See Collen Cunningham, Florian Ederer, & Song Ma, Killer Acquisitions, 129 J. Pol. Econ. 649 (2021); Sai Krishna Kamepalli, Raghuram Rajan & Luigi Zingales, Kill Zone, Nat’l Bureau of Econ. Research, Working Paper No. 27146 (2020); Digital Competition Expert Panel, Unlocking Digital Competition (2019), available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf; Stigler Center for the Study of the Economy and the State, Stigler Committee on Digital Platforms (2019), available at https://www.publicknowledge.org/wp-content/uploads/2019/09/Stigler-Committee-on-Digital-Platforms-Final-Report.pdf; Australian Competition & Consumer Commission, Digital Platforms Inquiry (2019), available at https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf. See also Jacques Cre?mer, Yves-Alexandre De Montjoye, Heike Schweitzer, Competition Policy For The Digital Era Final Report (2019), available at https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf [hereinafter “Crémer Report”].

[8] Cristina Caffarra, Gregory S. Crawford, & Tommaso Valletti, “How Tech Rolls”: Potential Competition and “Reverse” Killer Acquisitions, 2 Antitrust Chron. 1, 1 (2020).

[9] As far as jurisdictional thresholds are concerned, see, e.g., Crémer Report, supra note 7, at 10 (“Many of these acquisitions may escape the Commission’s jurisdiction because they take place when the start-ups do not yet generate sufficient turnover to meet the thresholds set out in the EUMR. This is because many digital startups attempt first to build a successful product and attract a large user base while sacrificing short-term profits; therefore, the competitive potential of such start-ups may not be reflected in their turnover. To fill this gap, some Member States have introduced alternative thresholds based on the value of the transaction, but their practical effects still have to be verified.”). As far as inverting the burden of proof is concerned, see, e.g., Crémer Report, supra note 7, at 11 (“The test proposed here would imply a heightened degree of control of acquisitions of small start-ups by dominant platforms and/or ecosystems, to be analysed as a possible strategy against partial user defection from the ecosystem. Where an acquisition is plausibly part of such a strategy, the notifying parties should bear the burden of showing that the adverse effects on competition are offset by merger-specific efficiencies.”).

[10] As far as jurisdictional thresholds are concerned, see, e.g., Crémer Report, supra note 7, at 10 (“Many of these acquisitions may escape the Commission’s jurisdiction because they take place when the start-ups do not yet generate sufficient turnover to meet the thresholds set out in the EUMR. This is because many digital startups attempt first to build a successful product and attract a large user base while sacrificing short-term profits; therefore, the competitive potential of such start-ups may not be reflected in their turnover. To fill this gap, some Member States have introduced alternative thresholds based on the value of the transaction, but their practical effects still have to be verified.”). As far as inverting the burden of proof is concerned, see, e.g., Crémer Report, supra note 7, at 11 (“The test proposed here would imply a heightened degree of control of acquisitions of small start-ups by dominant platforms and/or ecosystems, to be analysed as a possible strategy against partial user defection from the ecosystem. Where an acquisition is plausibly part of such a strategy, the notifying parties should bear the burden of showing that the adverse effects on competition are offset by merger-specific efficiencies.”).

[11] See FTC Press Release, FTC Sues to Block Procter & Gamble’s Acquisition of Billie, Inc. (Dec. 8, 2020), https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-block-procter-gambles-acquisitionbillie-inc; DOJ Press Release, Justice Department Sues to Block Visa’s Proposed Acquisition of Plaid (Nov. 5, 2020), https://www.justice.gov/opa/pr/justice-department-sues-block-visas-proposedacquisition-plaid; FTC Press Release, FTC Files Suit to Block Edgewell Personal Care Company’s Acquisition of Harry’s, Inc. (Feb. 3, 2020), https://www.ftc.gov/news-events/press-releases/2020/02/ftcfiles-suit-block-edgewell-personal-care-companys-acquisition; FTC Press Release, FTC Challenges Illumina’s Proposed Acquisition of PacBio (Dec. 17, 2019), https://www.ftc.gov/newsevents/pressreleases/2019/12/ftc-challenges-illuminas-proposed-acquisition-pacbio; DOJ Press Release, Justice Department Sues to Block Sabre’s Acquisition of Farelogix (Aug. 20, 2019), https://www.justice.gov/opa/pr/justice-department-sues-block-sabres-acquisition-farelogix.

[12] See FTC Press Release, FTC Sues to Block Procter & Gamble’s Acquisition of Billie, Inc. (Dec. 8, 2020), https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-block-procter-gambles-acquisitionbillie-inc; DOJ Press Release, Justice Department Sues to Block Visa’s Proposed Acquisition of Plaid (Nov. 5, 2020), https://www.justice.gov/opa/pr/justice-department-sues-block-visas-proposedacquisition-plaid; FTC Press Release, FTC Files Suit to Block Edgewell Personal Care Company’s Acquisition of Harry’s, Inc. (Feb. 3, 2020), https://www.ftc.gov/news-events/press-releases/2020/02/ftcfiles-suit-block-edgewell-personal-care-companys-acquisition; FTC Press Release, FTC Challenges Illumina’s Proposed Acquisition of PacBio (Dec. 17, 2019), https://www.ftc.gov/newsevents/pressreleases/2019/12/ftc-challenges-illuminas-proposed-acquisition-pacbio; DOJ Press Release, Justice Department Sues to Block Sabre’s Acquisition of Farelogix (Aug. 20, 2019), https://www.justice.gov/opa/pr/justice-department-sues-block-sabres-acquisition-farelogix.

[13] See, e.g., Prepared Remarks of Commissioner Noah Joshua Phillips, “Reasonably Capable? Applying Section 2 to Acquisitions of Nascent Competitors,” Antitrust in the Technology Sector: Policy Perspectives and Insights From the Enforcers Conference (Apr. 29, 2021), available at https://www.ftc.gov/system/files/documents/public_statements/1589524/reasonably_capable_-_acquisitions_of_nascent_competitors_4-29-2021_final_for_posting.pdf (“Some would-be reformers view M&A as fundamentally predatory and wish to “level the playing” field for smaller, less competitive, or more sympathetic businesses by throwing as much sand in the gears as possible. But their Harrison Bergeron vision of competition, handicapping successful businesses, will not so much level the field as tilt the scales dramatically in favor of the government, handing tremendous power to regulators, sapping American competitiveness, and hitting Americans in their pocketbooks.”).

[14] Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1 (1984).

[15] For vertical mergers, the welfare-enhancing effects are well-established. See, e.g., Francine Lafontaine & Margaret Slade, Vertical Integration and Firm Boundaries: The Evidence, 45 J. Econ. Lit. 677 (2007) (“In spite of the lack of unified theory, over all a fairly clear empirical picture emerges. The data appear to be telling us that efficiency considerations overwhelm anticompetitive motives in most contexts. Furthermore, even when we limit attention to natural monopolies or tight oligopolies, the evidence of anticompetitive harm is not strong.”). See also, Global Antitrust Institute, Comment Letter on Federal Trade Commission’s Hearings on Competition and Consumer Protection in the 21st Century, Vertical Mergers 8–9, Geo. Mason Law & Econ. Research Paper No. 18-27 (2018), https://ssrn.com/abstract=3245940 (“In sum, these papers from 2009-2018 continue to support the conclusions from Lafontaine & Slade (2007) and Cooper et al. (2005) that consumers mostly benefit from vertical integration. While vertical integration can certainly foreclose rivals in theory, there is only limited empirical evidence supporting that finding in real markets. The results continue to suggest that the modern antitrust approach to vertical mergers 9 should reflect the empirical reality that vertical relationships are generally procompetitive.”). Along similar lines, empirical research casts doubt on the notion that antitrust merger enforcement (in marginal cases) raises consumer welfare. The effects of horizontal mergers are, empirically, less well-documented. See, e.g., Robert W Crandall & Clifford Winston, Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence, 17 J. Econ. Persp. 20 (2003) (“We can only conclude that efforts by antitrust authorities to block particular mergers or affect a merger’s outcome by allowing it only if certain conditions are met under a consent decree have not been found to increase consumer welfare in any systematic way, and in some instances the intervention may even have reduced consumer welfare.”). While there is some evidence that horizontal mergers can reduce consumer welfare, at least in the short run, see, for example, Gregory J. Werden, Andrew S. Joskow, & Richard L. Johnson, The Effects of Mergers on Price and Output: Two Case Studies from the Airline Industry, 12 Mgmt. Decis. Econ. 341 (1991), the long-run effects appear to be strongly positive. See, e.g., Dario Focarelli & Fabio Panetta, Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits, 93 Am. Econ. Rev. 1152, 1152 (2003) (“We find strong evidence that, although consolidation does generate adverse price changes, these are temporary. In the long run, efficiency gains dominate over the market power effect, leading to more favorable prices for consumers.”). See also generally Michael C. Jensen, Takeovers: Their Causes and Consequences, 2 J. Econ. Persp. 21 (1988). Some related literature similarly finds that horizontal merger enforcement has harmed consumers. See B. Espen Eckbo & Peggy Wier, Antimerger Policy Under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis, 28 J.L. & Econ. 119, 121 (1985) (“In sum, our results do not support the contention that enforcement of Section 7 has served the public interest. While it is possible that the government’s merger policy has deterred some anticompetitive mergers, the results indicate that it has also protected rival producers from facing increased competition due to efficient mergers.”); B. Espen Eckbo, Mergers and the Value of Antitrust Deterrence, 47 J. Finance 1005, 1027-28 (1992) (rejecting “the market concentration doctrine on samples of both U.S. and Canadian mergers. By implication, the results also reject the effective deterrence hypothesis. The evidence is, however, consistent with the alternative hypothesis that the horizontal mergers in either of the two countries were expected to generate productive efficiencies”). Regarding the effect of mergers on investment, see, e.g., Gordon M. Phillips & Alexei Zhdanov, Venture Capital Investments and Merger and Acquisition Activity Around the World, NBER Working Paper No. w24082 (Nov. 2017), available at https://ssrn.com/abstract=3082265 (“We examine the relation between venture capital (VC) investments and mergers and acquisitions (M&A) activity around the world. We find evidence of a strong positive association between VC investments and lagged M&A activity, consistent with the hypothesis that an active M&A market provides viable exit opportunities for VC companies and therefore incentivizes them to engage in more deals.”). And increased M&A activity in the pharmaceutical sector has not led to decreases in product approvals; rather, quite the opposite has happened. See, e.g., Barak Richman, Will Mitchell, Elena Vidal, & Kevin Schulman, Pharmaceutical M&A Activity: Effects on Prices, Innovation, and Competition, 48 Loyola U. Chi. L.J. 799 (2017) (“Our review of data measuring pharmaceutical innovation, however, tells a different story. First, even as merger activity in the United States increased over the past ten years, there has been a steady upward trend of FDA approvals of new molecular entities (“NMEs”) and new biological products (“BLAs”). Hence, the industry has been highly successful in bringing new products to the market.”).

[16] Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).

[17] See Harold Demsetz, Information and Efficiency: Another Viewpoint, 12 J.L. Econ. 1, 22 (1969) (“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.”).

[18] Cunningham et al., supra note 7, at 692 (“Given these assumptions and estimates, what would the fraction ν of pure killer acquisitions among transactions with overlap have to be to result in the lower development of acquisitions with overlap (13.4%)? Specifically, we solve the equation 13.4% = ν × 0 + (1 − ν) × 17.5% for ν which yields ν = 23.4%. Therefore, we estimate that 5.3% (= ν × 22.7%) of all acquisitions, or about 46 (= 5.3% × 856) acquisitions every year, are killer acquisitions. If instead we assume the non-killer acquisitions to have the same development likelihood as non-acquired projects (19.9%), we estimate that 7.4% of acquisitions, or 63 per year, are killer acquisitions.”).

[19] See Value of Mergers and Acquisitions (M&A) Worldwide from 1985 to 2020, Statista (Jan. 15, 2021), https://www.statista.com/statistics/267369/volume-of-mergers-and-acquisitions-worldwide. See Gross Domestic Spending on R&D, OECD (last visited Apr. 29, 2021) https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm.

[20] See supra note 15.

[21] Running the antitrust system is itself a cost to society.

[22] See, e.g., Olivier E. Williamson, Economies as an Antitrust Defense: The Welfare Tradeoffs, 58 Am. Econ. Rev. 18 (1968). See also, Easterbrook, supra note 14; Henry G. Manne, supra note 16; William M Landes & Richard A Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937 (1980).

[23] Easterbrook, id., at 14.

[24] See Easterbrook, id., at 17 (“The task, then, is to create simple rules that will filter the category of probably beneficial practices out of the legal system, leaving to assessment under the Rule of Reason only those with significant risks of competitive injury.”).

[25] Id. at 15 (“They should adopt some simple presumptions that structure antitrust inquiry. Strong presumptions would guide businesses in planning their affairs by making it possible for counsel to state that some things do not create risks of liability. They would reduce the costs of litigation by designating as dispositive particular topics capable of resolution.”).

[26] See Number of Merger and Acquisition Transactions Worldwide from 1985 to 2021, Statista (May 14, 2021), https://www.statista.com/statistics/267368/number-of-mergers-and-acquisitions-worldwide-since-2005.

[27] See 15 U.S.C. §18a (1976). See also, FTC Premerger Notification Office Staff, HSR Thresholds Adjustments and Reportability for 2020, FTC Competition Matters (Jan. 31, 2020), https://www.ftc.gov/news-events/blogs/competition-matters/2020/01/hsr-threshold-adjustments-reportability-2020. See also Council Regulation 139/2004, 2004 O.J. (L 24) 1, 22 (EC).

[28] See Federal Trade Comm’n & U.S. Dep’t of Justice, Hart-Scott-Rodino Annual Report Fiscal Year 2019 (2020), available at https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competition-department-justice-antitrust-division-hart-scott-rodino/p110014hsrannualreportfy2019_0.pdf. See also, European Commission, Merger Statistics, 21 September 1990 to 31 December 2020 (2021), available at https://ec.europa.eu/competition/mergers/statistics.pdf.

[29] See FTC and European Commission, id.

[30] See U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (2010), U.S. Dep’t of Justice & Fed. Trade Comm’n, Vertical Merger Guidelines (2020). See also Commission Guidelines on the Assessment of Non-Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings, 2008 O.J. (C 265) 6, 25.

[31] See Federal Trade Commission & U.S. Department of Justice, Antitrust Guidelines for the Licensing of Intellectual Property 15 (Jan. 12, 2017) (“The existence of a horizontal relationship between a licensor and its licensees does not, in itself, indicate that the arrangement is anticompetitive. Identification of such relationships is merely an aid in determining whether there may be anticompetitive effects arising from a licensing arrangement.”). See also European Commission, Communication from the Commission—Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, O.J. C. 45, 7–20 (Feb. 24, 2009).

[32] See Antitrust Guidelines for the Licensing of Intellectual Property, id. See also, Commission Guidelines on Vertical Restraints, 2010 O.J. (C 130) 1, 46, available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52010XC0519(04)&from=EN.

[33] Easterbrook, supra note 14, at 15.

[34] It requires only limited government resources to function, compared to, for example, a system that reviews every merger in detail.

[35] Companies can self-assess whether their mergers are likely to be struck down by authorities and adapt their investment decisions accordingly.

[36] Even in-depth merger investigations are typically concluded within months, rather than years.

[37] See Demsetz, supra note 17, at 1 (“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.”).

[38] See Cunningham et al., supra note 7; Zingales et al., supra note 7; Kevin A Bryan & Erik Hovenkamp, Antitrust Limits on Startup Acquisitions, 56 Rev. Indus. Org. 615 (2020); Mark A. Lemley & Andrew McCreary, Exit Strategy, Stanford Law and Economics Working Paper No. 542 (2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3506919.

[39] See Cunningham et al., id. at 650 (“We argue that an incumbent firm may acquire an innovative target and terminate the development of the target’s innovations to preempt future competition. We call such acquisitions ‘killer acquisitions,’ as they eliminate potentially promising, yet likely competing, innovation.”).

[40] See, e.g., Axel Gautier & Joe Lamesch, Mergers in the Digital Economy, Info. Econ. & Pol’y (2000) (“There are three reasons to discontinue a product post-acquisition: the product is not as successful as expected, the acquisition was not motivated by the product itself but by the target’s assets or R&D effort, or by the elimination of a potential competitive threat. While our data does not enable us to screen between these explanations, the present analysis shows that most of the startups are killed in their infancy.”).

[41] John M. Yun, Potential Competition, Nascent Competitors, and Killer Acquisitions, in GAI Report on the Digital Economy (Ginsburg & Wright, eds. 2000).

[42] See Zingales et al. supra note 7.

[43] See, e.g., Kevin Caves & Hal Singer, When the Econometrician Shrugged: Identifying and Plugging Gaps in the Consumer-Welfare Standard, 26 Geo. Mason L. Rev. 396 (2018) (“Or imagine the platform was appropriating or “cloning” app functionality into its basic service. The only potential harm in this instance would be that independent edge providers would be encouraged to exit or discouraged from entering in future periods. In theory, edge providers might be discouraged to compete in the app space given what they perceive to be a slanted playing field.”).

[44] See, e.g., Eric Fruits, Justin (Gus) Hurwitz, Geoffrey A. Manne, Julian Morris, & Alec Stapp, Static and Dynamic Effects of Mergers: A Review of the Empirical Evidence in the Wireless Telecommunications Industry, OECD Directorate for Financial and Enterprise Affairs Competition Committee, Global Forum on Competition, DAF/COMP/GF(2019)13 (Dec. 6, 2019) at ¶ 61, available at https://one.oecd.org/document/DAF/COMP/GF(2019)13/en/pdf (“Studies that do not consider these [non-price] effects are incomplete for purposes of evaluating the mergers’ consumer welfare effects, and [are] all-too-easily used by advocates to misleadingly predict negative consumer outcomes. This is not necessarily a criticism of the studies themselves, which generally do not make comprehensive policy conclusions. The reality is that it is exceptionally difficult to comprehensively study even price effects, such that a well-conducted study of price effects alone is a valuable contribution to the literature. Nevertheless, in the context of evaluating prospective transactions, the results of such studies must be discounted to account for their exclusion of non-price effects.”).

[45] Luís Cabral, Merger Policy in Digital Industries, CEPR Discussion Paper No. DP14785 (May 2020) at 12, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3612854.

[46] See Carl Shapiro, Antitrust in the Time of Populism, 61 Int’l J. Indus. Org. 714 (2018).

[47] See Henry G. Manne, supra note 16.