The Sound of One Hand Clapping: The 2010 Merger Guidelines and the Challenge of Judicial Adoption
Along with co-author Judd Stone, I’ve posted to SSRN our contribution to the Review of Industrial Organization‘s symposium on the 2010 Horizontal Merger Guidelines — The Sound of One Hand Clapping: The 2010 Horizontal Merger Guidelines and the Challenge of Judicial Adoption.
The paper focuses on the Guidelines’ efficiencies analysis. We argue that while the 2010 HMGs “update” the Guidelines’ analytical approach in generally desirable ways, these updates are largely asymmetrical in nature: while the new Guidelines update economic thinking on one “side” of the ledger (changes that make the plaintiff’s prima facie burden easier to satisfy, ceteris paribus), they do not do so with respect to efficiencies analysis on the other side of the ledger. These asymmetrical changes thereby undermine the new Guidelines’ institutional credibility.
In particular, we focus on the Guidelines’ treatment of so-called “out-of-market” efficiencies as well as fixed cost savings. In both cases we argue that updates were appropriate and consistent with the Agencies’ expressed preference to more accurately reflect economic thinking and shift from proxies to direct assessment of competitive effects. If anything, the Guidelines appear to be more skeptical of efficiencies arguments than the previous version, adding “the Agencies are mindful that the antitrust laws give competition, not internal operational efficiency, primacy in protecting customers.” We then turn to discussing the implications of this “asymmetrical update” for judicial adoption of the Guidelines. Some have discussed the possibility that these Guidelines will be less successful with federal courts because they downplay market definition. As I’ve said here many times, I do not think the Agencies (if out of nothing but self-interest) will avoid market definition. However, we argue that the asymmetrical updating problem is a more serious one, and that widespread and wholesale adoption of the HMGs should not be taken for granted.
Here is the abstract:
There is ample justification for the consensus view that the Horizontal Merger Guidelines have proven one of antitrust law’s great successes in the grounding of antitrust doctrine within economic learning. The foundation of the Guidelines’ success has been its widespread adoption by federal courts, which have embraced its rigorous underlying economic logic and analytical approach to merger analysis under the Clayton Act. While some have suggested that the Guidelines’ most recent iteration might jeopardize this record of judicial adoption by downplaying the role of market definition and updating its unilateral effects analysis, we believe these updates are generally beneficial and include long-overdue shifts away from antiquated structural presumptions in favor of analyzing competitive effects directly where possible. However, this article explores a different reason to be concerned that the 2010 Guidelines may not enjoy widespread judicial adoption: the 2010 Guidelines asymmetrically update economic insights underlying merger analysis. While the 2010 Guidelines’ updated economic thinking on market definition and unilateral effects will likely render the prima facie burden facing plaintiffs easier to satisfy in merger analysis moving forward, and thus have significant practical impact, the Guidelines do not correspondingly update efficiencies analysis, leaving it as largely as it first appeared 13 years earlier. We discuss two well-qualified candidates for “economic updates” of efficiencies analysis under the Guidelines: (1) out-of-market efficiencies and (2) fixed cost savings. We conclude with some thoughts about the implications of the asymmetric updates for judicial adoption of the 2010 Guidelines.
Download and read the whole thing.
Filed under: antitrust, business, economics, legal scholarship, merger guidelines, mergers & acquisitions, scholarship