ICLE Scholars on ‘Doomsday’ Merger Predictions
A new paper from the International Center for Law & Economics (ICLE) looks at panicky predictions about past business mergers that haven’t panned out as the doomsayers warned. The paper comes as the Federal Trade Commission (FTC) and the Department of Justice “prepare to release updated federal merger guidelines that the agencies say will better detect and prevent illegal and anticompetitive deals,” notes ICLE in a press release. But bureaucrats and politicians don’t have a great track record on predicting the effects of particular mergers, suggest Brian Albrecht, Dirk Auer, Eric Fruits, and Geoffrey A. Manne in “Doomsday Mergers: A Retrospective Study of False Alarms.”The authors point to alarms sounded over Amazon’s 2017 purchase of Whole Foods, Bayer’s 2018 merger with Monsanto, Google’s 2019 purchase of Fitbit, and Anheuser-Busch InBev’s 2016 acquisition of SABMiller. In the latter case, “critics claimed [the acquisition] would increase the price of beer and decimate the burgeoning craft-beer segment,” they write:
Instead, the concentration of the beer industry decreased after the mergers, prices did not increase on average, and the craft-beer segment thrived. This is not to say that all is rosy; the price of some beers did indeed increase after the wave of mergers. Regardless, it is clear the post-merger outcome was a far cry from the doomsday scenario that critics predicted.
People feared that Google’s purchase of Fitbit would lead to consumer privacy violations and make Google more dominant in advertising, because Google would use data from the devices in its advertising business. “The fear was that, by purchasing Fitbit, Google would be in a position to better target ads throughout its entire platform, thereby increasing its hold on the broader advertising industry,” note the authors. But:
Four years on, however, the opposite appears to have happened. From 2017 to 2022, Google’s share of online advertising spend has steadily declined, falling from 34.7% to 28.8%.118 And it is not just in relative terms; the company’s quarterly earnings reports show a clear decline in ad revenue, including year-over-year drops in the fourth quarter of 2022 of 8.6% for the Google network and 7.0% for YouTube. As usual, critics may retort that Google’s revenues and market shares would have declined even more absent the merger but, once again, that was not the initial claim. Instead, they wrote that the merger would give Google an unbreakable grip on the online-advertising industry—the “horse has bolted” as Gregory Crawford put it—and that has not been the case.
You can read the full report here. The authors conclude with a warning: “We should be skeptical of kneejerk projections of doom, whether from activists, competition scholars, or media pundits.”