New Merger Guidelines Could Tell Economists: Drop That Hypothetical Can Opener
Federal antitrust enforcers are signaling that they don’t want merger enforcement to be the butt of the classic joke about the shipwrecked economist who solves the problem of how to open a can of soup by assuming a can opener. Merger justifications that assume hypothetical competitors would block anticompetitive effects may not pass the laugh test under new Merger Guidelines.
Antitrust enforcers are likely to give greater weight to real-world competitive harm than to theoretical assumptions, according to Christine Varney, Assistant Attorney General for Antitrust, who made concluding remarks last week on the completion of two months of workshops on revising the Department of Justice and Federal Trade Commission’s Horizontal Merger Guidelines.
It is likely that this effort will lead to a significant revision of the Merger Guidelines. Due to the Guidelines’ persuasive influence on jurists, the courts’ approach to mergers is also likely to change.
AAG Varney cited the following “gaps” between the Guidelines and actual agency practice:
• “[D]efining markets and measuring market shares may not always be the most effective starting point for many types of merger reviews. . . . When it is clear, for instance, that either certain vulnerable customers are likely to be harmed by a merger . . . the need to define a market to assess likely competitive effects is diminished.”
• “[T]he Guidelines overstate the importance of HHIs in merger analysis . . . Revising the HHI thresholds to express accurately how the Agencies use HHIs seems not just appropriate but also necessary to correct what has become an affirmative misstatement at this point.”
• The Guidelines do not explain fully the agencies’ tools of economic analysis, such as sales diversion ratios, price-cost margins, customer win-loss reports, and the views of competitors, customers, and other industry observers.
AAG Varney’s comments echoed lessons learned from the financial markets’ collapse in 2008. She noted that: “Theoretical assumptions that market forces naturally and inevitably correct for market failures clearly need to be reconsidered. In the context of the Horizontal Merger Guidelines, the most relevant aspect of this reassessment involves explicit or implicit assumptions that entry will erode market power otherwise enhanced by a merger.”
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