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Scholarship Forthcoming in the Missouri Law Journal, ICLE scholars scrutinize recent scholarship regarding so-called "kill zones" and "killer acquisitions" and the pitfalls that would accompany attempts to change existing merger rules and thresholds to account for them.
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 would 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.
Several high-profile academic articles and reports claim to have identified important gaps in current merger enforcement rules, particularly with respect to tech and pharma acquisitions involving nascent and potential competitors—so-called “killer acquisitions” and “kill zones.” As a result of these perceived deficiencies, scholars and enforcers have called for tougher rules, including the introduction of lower merger filing thresholds and substantive changes, such as the inversion of the burden of proof when authorities review mergers and acquisitions in the digital platform industry. 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.
As this paper discusses, however, these proposals 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.
Our work draws from two key strands of economic literature that are routinely overlooked (or summarily dismissed) by critics of the status quo. For a start, as Frank Easterbrook argued in his pioneering work on The Limits of Antitrust, antitrust enforcement is anything but costless. In the case of merger enforcement, not only is it expensive for agencies to detect anticompetitive deals, but 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.
Second, critics mistake the nature of causality. Scholars routinely surmise that incumbents use mergers to shield themselves from competition. Acquisitions are thus seen as a means of eliminating competition. But this overlooks an important alternative: It is at least plausible that incumbents’ superior managerial or other capabilities 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 anticompetitive behavior.
Thus, significant and high-profile M&A activity involving would-be competitors may 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—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 paper attempts to set the record straight.
Read the full white paper here.
TOTM President Joe Biden named his post-COVID-19 agenda “Build Back Better,” but his proposals to prioritize support for government-run broadband service “with less pressure to turn . . .
President Joe Biden named his post-COVID-19 agenda “Build Back Better,” but his proposals to prioritize support for government-run broadband service “with less pressure to turn profits” and to “reduce Internet prices for all Americans” will slow broadband deployment and leave taxpayers with an enormous bill.
Read the full piece here.
Presentations & Interviews ICLE President Geoffrey Manne took part in a virtual panel discussion hosted by the Federalist Society on whether common carrier regulations could and should be . . .
ICLE President Geoffrey Manne took part in a virtual panel discussion hosted by the Federalist Society on whether common carrier regulations could and should be used to constrain the moderation decisions of digital platforms. The full video is embedded below.
ICLE White Paper The instinct to promote broadband network buildout is understandable, but precisely how that infrastructure funding is deployed will determine whether such proposals succeed or fail.
The 117th Congress is considering whether to devote significant federal resources toward promoting broadband access in underserved communities. Legislative proposals to do so include President Joe Biden’s draft American Jobs Plan—a $2.3 trillion budget-reconciliation package that sets aside $100 billion for broadband infrastructure. They also include the Accessible, Affordable Internet for All Act, which would create a $79.5 billion federal program.
The instinct to promote network buildout is understandable, particularly in the wake of the COVID-19 pandemic and the various socioeconomic disparities it highlighted. But precisely how that infrastructure funding is deployed will determine whether such proposals succeed or fail.
In fact, the U.S. broadband market is already healthy, and in most cases, competitive outcomes are close to optimal. Charges that broadband markets are dominated by monopolies or oligopolies and that they are therefore stagnant, over-priced, and of low quality do not comport with the empirical and economic realities. To take but one example, even with the overall rise of prices across the economy, and in the face of surging demand during the COVID-19 pandemic, U.S. broadband prices fell.
Concentration is a poor predictor of competitiveness, and broadband markets with even a small number of competitors can be—and are—quite healthy. Indeed, the multi-year, multi-billion-dollar investment plans broadband firms execute—amid constant pressure from alternative modes of Internet access like 5G, fixed wireless, and satellite—tell the story of a highly competitive, dynamic market.
To be sure, there are a few areas where there has been no meaningful wireline broadband buildout: Approximately 4.4 percent of the U.S. population does not have access to at least 25/3 Mbps fixed service. Even then, however, many of those areas are served by wireless Internet service providers (WISPs), cellular broadband, and/or satellite service.
But while the digital divide—both rural and urban—may be real, that fact alone does not justify wholesale intervention into broadband markets. Instead, the actual scope of the problem should be assessed, and policies tailored to remedy specific needs. The policies required to reach that stubborn 4.4 percent tail of broadband rollout are likely to be very different than those that facilitated the buildout of the first 95.6 percent.
Policies designed to close the digital divide should have two broad features: they should reach consumers where they are, and they should not disrupt the otherwise healthy broadband market. Reaching consumers where they are means targeting subsidies directly to consumers to make it more viable for existing providers to build out into new areas. Such policies should be technology-neutral and designed to stimulate demand to jumpstart markets that have otherwise proven too costly for any provider to enter. Avoiding disruption of healthy markets entails refraining from interventions that artificially introduce new competitors, skew investment planning by broadband providers, or dictate how and where providers should build networks.
There is much that can be done to encourage better and timelier broadband rollout, but not all solutions are equally effective. As we detail below, policymakers must choose carefully among competing options to realize the best possible result.
This paper aims to address common misconceptions associated with broadband competition that, in turn, undercut practical solutions for connecting the unconnected. It first details some of those misconceptions and contrasts them with the realities of current broadband markets. It then provides an overview of how to properly understand healthy competition in local broadband markets. It then provides a critique of commonly advanced proposals that are based on fundamental misunderstandings of how broadband markets work. And finally, it offers an approach to policy that incorporates a variety of solutions for connecting the unconnected.
* NOTE: Section 1.b was updated July 13, 2021, to reflect feedback regarding the paper’s interpretation of certain relevant economic studies.
Scholarship Woodcock’s bold claims ignore or misconstrue several critical aspects of the modern antitrust apparatus. Chief among these is the uncertainty that underpins antitrust enforcement, and the rule of reason’s role in decreasing this uncertainty.
In The Hidden Rules of a Modern Antitrust, Ramsi Woodcock argues that courts’ systematic use of the rule of reason, which underpins most of contemporary antitrust law, effectively amounts to an unwarranted blanket exemption from liability for potentially egregious practices. According to Woodcock, this is due to the interaction between the exorbitant cost of prosecuting cases under this standard (compared to the cost of enforcing per se rules), the courts’ increasing application of the rule of reason, and the shrinking budgets of antitrust enforcement agencies.
As this Response discusses, Woodcock’s bold claims ignore or misconstrue several critical aspects of the modern antitrust apparatus. Chief among these is the uncertainty that underpins antitrust enforcement, and the rule of reason’s role in decreasing this uncertainty. It takes time and experience for courts to form an opinion about the value of certain forms of business conduct, and rule of reason litigation increases the accuracy of all subsequent litigation—and the ability of both economic actors and antitrust enforcers to predict judicial outcomes and adjust their practices accordingly. This stands in stark contrast to Woodcock’s model, which assumes that courts are unable to differentiate between forms of ambiguous conduct (and yet simultaneously well informed enough about enforcers’ budget constraints to know whether they can “afford” to litigate under the rule of reason).
Winston Churchill famously quipped that “it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time . . . .” Much of the same could be said about the rule of reason. While it is certainly not perfect, policymakers have yet to find another standard that provides the same flexibility to accommodate ever-evolving forms of conduct with initially ambiguous effects on consumer welfare. Woodcock’s paper underplays these important virtues, while his more pointed critiques often miss the mark.
TL;DR Some U.S. antitrust advocates, including members of Congress, recently have advocated the United States adopt a more European approach to antitrust policy.
Some U.S. antitrust advocates, including members of Congress, recently have advocated the United States adopt a more European approach to antitrust policy. This comes as the European Commission itself is proposing a Digital Markets Act (DMA) that would impose new regulations on Big Tech platforms and ban many forms of conduct outright.
Europe’s economies are less innovative, less dynamic, and ultimately, significantly poorer than the United States. Europe’s technology markets, in particular, are relatively stagnant. Regulating them directly is likely to make Europe’s problems with innovation worse, and would serve as a poor model for the United States to follow.
Read the full explainer here.
TL;DR The Dodd-Frank Act of 2010 set price controls for debit-card interchange fees charged by banks with more than $10 billion in assets.
The Dodd-Frank Act of 2010 set price controls for debit-card interchange fees charged by banks with more than $10 billion in assets. Known colloquially as the “Durbin Amendment” after Sen. Dick Durbin, who sponsored the original proposal, the provision was supposed to cut costs for customers and merchants by cutting the interchange fees charged by large banks roughly in half.
Covered banks and credit unions have recouped these losses by eliminating free checking accounts, raising minimum balance requirements, and charging higher maintenance fees. While retailers have seen cost reductions as a result of the Durbin Amendment, there is little evidence those savings have been passed on to consumers.
In recent years, some lawmakers have signaled interest in limiting interchange fees on credit-card transactions, as well. Some elements of the retail sector likewise sought a cap on credit card interchange fees as part of COVID-19 relief legislation in 2020. Sen. Durbin himself also recently suggested the Durbin Amendment’s cap on interchange fees should be extended to credit cards. The predictable result would be a reduction in credit and rewards programs made available to consumers.
ICLE Issue Brief The COVID-19 pandemic has highlighted the resilience of U.S. broadband infrastructure, the extent to which we rely on that infrastructure, and the geographies and communities . . .
The COVID-19 pandemic has highlighted the resilience of U.S. broadband infrastructure, the extent to which we rely on that infrastructure, and the geographies and communities where broadband build-out lags behind. As the extent and impact of the digital divide has been made clearer, there is renewed interest in the best ways to expand broadband access to better serve all Americans.
At ICLE, we would caution policymakers to eschew calls to address the digital divide simply by throwing vast sums of money at the problem. They should, instead, pursue a principled approach designed to encourage entry in new regions, while avoiding poorly managed subsidies and harmful price controls that would discourage investment and innovation by incumbent internet service providers (ISPs). Here is how to do that.
Read the full brief here.
Written Testimonies & Filings The signatories of this letter, active or emeritus professors employed at public or private universities in the United States, come from across the political spectrum, and have a wide variety of views on regulation, environmental and consumer protection, and free enterprise as a general matter, but find common ground on the important issue of automotive direct sales.
We, the signatories of this letter, are active or emeritus professors employed at public or private universities in the United States. We specialize in economics, competition policy, market regulation, industrial organization, or other disciplines bearing on the questions presented in this letter. We come from across the political spectrum, and have a wide variety of views on regulation, environmental and consumer protection, and free enterprise as a general matter, but find common ground on the important issue of automotive direct sales.
