ICLE COMMENTS, Whether the U.S. economy has become more concentrated and less competitive
These comments were submitted to the FTC as part of its hearings on “Competition and Consumer Protection in the 21st Century.” In these comments, we note three high level points: (1) Antitrust policy must avoid the simplistic inference of competitive effects from market structure; (2) HHIs are insufficient to guide decisions regarding the likely competitive effects of mergers; and (3) that simplistic inferences of competitive effects based on theoretical or econometric evidence from other industries are inappropriate and unpersuasive.
More specifically, we note that there is no rigorous economic support for claims that high concentration levels are a strong indicator of harm to competition or that they trigger a presumption of such harm in antitrust analysis. Instead, such assertions are based on a simple inference of competitive effects from market structures, and the unsupported assumption that an increase in concentration can mean only a reduction in competition. The problem is that no such inference can be made.
Further, parties seeking to challenge mergers often rely substantially on structural presumptions, and notably on claims regarding a deal’s assessment under the Herfindahl-Hirschman Index (HHI). In particular, they often urge consideration of the market’s HHI and the transaction’s purported effect on it, asserting that even the HHI alone counsels against a merger. But, as we note at length, HHIs simply can’t bear the weight put on them.
Finally, we note that it is also important to address recent empirical research which claims to show that increased concentration does, in fact, lead to higher prices or other competitive harm. On such example that is sometimes relied upon is the recent merger retrospective study by Professor John Kwoka. Unfortunately, Professor Kwoka’s study—and the econometric literature of which it is a part—cannot bear the weight placed upon it.