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Inside the 2023 Draft Merger Guidelines: A Conversation with Michael Kades

Posted  October 3, 2023

Antitrust Matters provides engaging and timely conversations about competition policy in the digital age. Antitrust has always mattered to consumers and businesses, and to antitrust lawyers and economists, but today it also is in the political and public discourse more than ever. From the prices we pay for food, travel, financial services, payments to the way we interact daily using digital apps and platforms, antitrust touches each and every one of us in ways we may not even realize. Antitrust Matters brings you you perspectives of experts and visionaries in the field who discuss where antitrust law has been, where it is going and why it is so important to our current political discourse.

In this episode, Jeff Shinder and Wyatt Fore are joined by Michael Kades, Deputy Assistant Attorney General for the Antitrust Division at the U.S. Department of Justice.  The three discuss the 2023 Draft Merger Guidelines, and whether they mark a shift in merger enforcement policy moving forward.


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Episode Transcript and Show Notes:

Jeff Shinder:

Welcome to Antitrust Matters, a Constantine Cannon podcast where we have engaging and timely conversations about competition policy in the digital age. My name is Jeff Shinder and I’ll be your host.

Antitrust has always mattered to consumers and businesses, but today it is also in the public discourse more than ever. From how we get our food on our plates, to how we travel, to the way we interact daily using digital apps and platforms, antitrust touches each and every one of us in ways we may not even realize. In Antitrust Matters, we bring you perspectives of experts and visionaries in the field who discuss where antitrust law has been, where it is going, and why it matters today more than ever before.

Hello, everyone. We are here on Antitrust Matters to talk about an important topic, arguably the hottest topic in antitrust, although it has some competition with some of the trials that are going on currently, and that is the Draft DOJ-FTC Merger Guidelines that were released over the summer where a comment period was opened up and a lot of comments came in. The comment period closed on September 18th, and we’re here to talk about the Merger Guidelines, why they were revised, what is different, why does it matter? How will it affect merger enforcement in the United States?

And we are thrilled to have with us today Michael Kades from the Antitrust Division to talk about this development and what it means and put it in context for everyone. Let me just say a few words about Michael’s background. He is currently the Deputy Assistant Attorney General for the Antitrust Division with a focus on civil enforcement. Prior to joining the DOJ, Michael was Director for Markets and Competition Policy at the Washington Center for Equitable Growth. Before that, he worked as antitrust counsel for Senator Amy Klobuchar on detail from the FTC, and he spent 20 years at the FTC investigating and litigating antitrust actions. So he comes here with a wealth of experience on this topic.

So first of all, welcome, Michael. Thank you for coming on the podcast to talk about this important topic. We’re very happy to have you here. Thank you.

Michael Kades:

Thank you both for having me. I’m looking forward to the conversation and really appreciate you guys doing these sorts of events or podcasts to really help the discussion about these guidelines.

Jeff Shinder:

And before I get into Q&A with Michael, I want to introduce my colleague Wyatt Fore, who is returning to the podcast. Wyatt has been on previous episodes of the podcast. So Wyatt, a big thank you for you organizing this and joining.

Wyatt Fore:

Well, thanks for having me.

Jeff Shinder:

Let’s get started. Michael, I want to start with some basics. First, if you can, situate for our listeners the Merger Guidelines. What are they? What role do they play in merger enforcement? Are they law? Are they something other than laws, force of precedent? Just explain to everyone what the guidelines are and then we could talk about why they were changed and why these changes matter.

Let’s start with the most basic question: What are the guidelines?

Michael Kades:

Absolutely. I’ll avoid starting with the history of antitrust law in general because I think the right place to start here is we have a law in the United States, the Clayton Act, that specifically regulates mergers. And under that law, basically a merger is illegal if the effect of it may be to substantially lessen competition or tend to create a monopoly. Those terms have a legal meaning.

Beginning in the late ’60s, the government thought it made some sense to try to give some guidance, hence the term guidelines, to how the government thought about that standard and how the government would investigate cases and determine whether the effect of the merger may be to substantially lessen competition or tend to create a monopoly.

So the guidelines are not law; they are the principles the government uses in thinking about investigating and analyzing mergers. They have been updated through time and periodically through the ages, but I think it is really important to say these guidelines, like every other guidelines, do not change the law. We still, at the end of the day, whatever the guidelines, we still have to go into court and we have to prove the merger is illegal. Our hope and really the hope for all of the guidelines is it provides transparency to the public, the companies, the bar about how the agencies are investigating mergers, and to the degree they reflect the law, we think they should provide some persuasive authority to courts as they think about the mergers they’re reviewing.

Wyatt Fore:

And so Michael, could you talk a little bit about why the guidelines are being updated now? For listeners, the most recent iteration of the Horizontal Guidelines were in 2010 and the most recent iteration of the Vertical Guidelines were in 2020. Could you talk a little bit about why the agencies decided now is a good time to revise the guidelines?

Michael Kades:

Yeah. So one thing, particularly as to the Horizontal Guidelines, the 13-year time period’s not really out of the ordinary. If anything, it’s a little long. We had guidelines in ’68, we had guidelines in ’82, I think ’87, ’92, ’97, 2010. So just the amount of time that’s passed, at least on the Horizontal Guidelines, is not out of the ordinary.

Maybe more importantly, a lot has changed in the economy over the last 13 years. We have seen the development of digital platforms are increasingly important. There’s been a lot of research being done on, say, the importance of market power in labor markets. There have been new economic tools that have been developed.

So on the one hand, the economy has changed, and really if we look back at the prior Merger Guideline amendments, they somewhat tie them to those sort of changes. The ’68 Guidelines really reflected an economy, a smokestack economy, an economy where you’re largely focused on industrial markets. Then when you get to sort of the late ’90s, that’s coming about at the same time as the dotcom explosion which raised new facets of competition and competition questions. 2010, really those guidelines, one of their goals and one of their successful goals was really to incorporate understandings about how to address not just thinking about markets and market shares only, but also thinking about how to deal with what we would call unilateral effects or what happens when you… Just looking at the impact of eliminating competition between two firms and how that can be anticompetitive. And so it’s time to think about that.

On the other hand, if we think about the way the guidelines have been used and the way the law has gone, in a lot of ways, the aperture of merger focus has narrowed. If we think about merger cases, when is the last time the government has won a merger challenge without relying on the structural presumption? The standard way a merger case works typically in the horizontal context, i.e. between competitors, you define the market, the relevant area of competition, you then measure market shares, and if you’re above a certain level, there’s a presumption. Then the government’s going to provide evidence that that market makes it easier for the participants to coordinate either explicitly or implicitly in a way that suppresses competition or just the evidence of how prices are going to go up. Let’s go back to that. A presumption is a presumption. And if the government always has to prove the presumption, it’s not a presumption; it’s a element.

I think part of what we’re trying to do here is to say we’re looking at the way we think about mergers isn’t simply only about the market share presumption, only about what we call unilateral effects; it’s about thinking about how competition presents itself in the market and how the mergers going to change that and is that detrimental?

Jeff Shinder:

Michael, that’s helpful. Let me drill into that a little more. You said a lot in that answer about changes in the economy and a desire to update the guidelines to reflect those types of changes. And if you could elaborate, and you started in on this in your last answer, on what is new here, what is different here?

And let’s say I’m sitting at a company and I’m thinking of doing a deal that has potential antitrust issues. I know the agencies are going to take a look at it and may get a second request. Should my valuation, the potential likelihood of enforcement action against my deal, would it be different ex-post as opposed to ex-ante when these guidelines are finalized?

I know there’s a lot in that question, so start with what is different here, and what is different for people who are looking at either counseling, companies, on the deals they can do, or are sitting and contemplating doing deals?

Michael Kades:

That’s a great question. I would answer it by saying there’s less to me about things being different than building on the concepts that are embedded in prior versions of the guidelines.

And starting in the very big picture, the danger sometimes with guidelines that I touched upon is if you write down what the guidelines are, that as I said, narrows the aperture to the formalistic analysis that’s there. That’s not their goal. I feel these guidelines are, again, trying to expand that aperture. Just to go back to my religious school days of being Jewish, there’s a story that gets told that a man comes to a famous rabbi and says, “Teach me the Torah while standing on one foot,” the Torah being Jewish Bible. And the scholar says, “Whatever you don’t want done to you, don’t do to others,” the rest is commentary.

And that’s how I think about these guidelines, that if you were to ask me to say, “Teach me antitrust on one foot,” I would say then, “Think about the competition that’s at stake. Two, in terms of mergers, think about how the elimination of the firm being acquired or the merger changes that competition. And three is that change detrimental?” And the rest is commentary.

And so I think if you look at the 13 principles, they all are commentary on how you think about a merger transaction. There are different ways competition can be affected. It can be affected that what we think is the most likely effect is prices are going to go up. So therefore, things like market share, how the firms compete on price is going to be relevant. But what we’re also saying is there may be other ways the competition presents itself and then you have to look at that, the competition at stake, and how the merger changes it.

Let me stop there because I’m not sure I quite answered your question and you can follow up.

Jeff Shinder:

Before Wyatt asks his follow-up because I know he’s got one. I have to ask you what I think I’m hearing you say, and I appreciated the Torah reference, to my question, is there something different? I’m contemplating a deal. Will the analytical framework ex-post be any different than it was ex-ante? Is it fair to infer from your Torah answer that, at bottom, the answer really is no, that the same overarching questions are going to be asked, although the commentary that may inform that same overarching question has evolved. Is that fair?

Michael Kades:

I think that’s a pretty fair statement because the overarching principle is the law and we can’t change that, but given the way the economy functions and different industries develop and different learning develops in economics, that changes the questions we ask in particular cases. And I guess maybe the bottom line is a little better.

You started with a question about a firm thinking about a merger. In that context, I think it’s important to recognize that if you’re a firm and somebody comes in and is telling you, “Okay, we just need to think about what… We need to define a market, we need to measure market shares, we need to think about unilateral effects,” we’re sort of putting the cart before the horse because that’s the legal analysis and really the way to think about this is how is this merger going to change competition, if at all, is the first question to ask. And if you ask that question first, I think these guidelines provide a much clearer understanding of what the government’s going to be interested in.

Wyatt Fore:

Very interesting, Michael.

Now, some of our listeners might not be as familiar with the administrative process for how these guidelines are pulled together and finalized. So currently, we have the Draft Merger Guidelines and we’re currently in a comment period, I believe for 60 days. Do you anticipate any major changes in anticipation or in response to that comment period or how much can people expect the sort of finalized Merger Guidelines to be similar to the Draft Merger Guidelines that the staff’s put so much work into already?

Michael Kades:

I think the comment period closed last week, so if you haven’t submitted your comments, you’re out of time. But the way we were trying to affect transparency here is about we made sure that we involved not just the top levels of the agencies drafting these. These guidelines went to staff at both agencies multiple times, multiple changes made, trying to make sure we understand what it is staff’s doing and that the guidelines reflect that.

And then we release them and we’ve gotten, I don’t even, a lot of comments, some of them positive, some of them negative. I think what’s really been fascinating is the amount of commentary coming from people who aren’t within the antitrust community. I know there’s a comment, Jonathan, the Assistant Attorney General, has been talking about nurses talking about how a merger made it harder for them to do their job or they had less support or they had to work longer hours.

And so the idea here is that this is we live in a time where antitrust matters to people in ways that it hasn’t in a century, so what we’re now going to do is think about all these comments, and we don’t pretend to think we had the answers in the draft. I think these are drafts and we’ll have to see where they come, but we did not sort of view the notice period as, “We’re going to put these out and then we’re just going to dispose of all the negative comments and all the suggestions and just land where we started.” The idea here is we are going to review these comments and think carefully about them. And so changes could occur.

I think, again, going back to my antitrust on one foot analogy, I think that overarching principle, thinking about how competition presents itself and how the merger changes that, that focus is not going to change and nor will the legal principles because we can’t change those anyway.

Jeff Shinder:

Michael, I want to take the discussion in a little bit of a different direction at this juncture before Wyatt and I get up to the wonkier antitrust nerdy portion of our conversation. But let’s stay at a high level for a moment.

And a lot of what you’re saying, and I’ll attempt to fairly characterize it and if you think I’ve missed anything, you’ll correct me, it was saying, look, the economy has changed. I think we’re all experiencing a lot of those changes. So that’s not, I don’t think, surprising to anyone who’s aware and out in the economy that there’s been a lot of significant changes in the last 10, 15, 20 years in the economy, and it makes perfect sense to update the guidelines to reflect those realities.

But, and here’s where I want to take the conversation in a different direction, do you believe that on some level, the guidelines also reflect… You just made a comment about antitrust matters and how it matters in an interesting way today, I appreciate that happened organically and it wasn’t even a plug for the name of our podcast which is Antitrust Matters. Antitrust really matters and that we are in a moment in time where the policy around antitrust enforcement, and we’re antitrust lawyers, so antitrust is law enforcement, but we all also understand that it sits in a policy framework, and we’re in a policy moment that says antitrust enforcement needs to be more vigorous.

One, would you agree that these guidelines in some way, shape, or form should reflect that policy judgment? And if you agree, in what ways does it reflect that policy judgment?

Michael Kades:

I would put it this way. I agree entirely that antitrust has a policy relevance and sort of a public interest that we haven’t seen in a century. I think that interest is a good thing in the sense that antitrust law is not the sole domain of economists and specialized antitrust lawyers like myself. Specialization is important, technocratic expertise is important, but sometimes you need people from the outside not part of that rather small group assessing what’s going on in the market or assessing antitrust enforcement and that can be very helpful.

And second, the other interesting part about it being organic is at the same time antitrust has become top of mind for the public, if you look at the research being done by leading economists, much of that research actually is refining, and in some sense, undermining previous economic principles that I think we all sort of, at some point, thought were likely to be true. Just if you look at the research, vertical integration, vertical mergers, a lot of it coming out now suggests that there are problems. And whether it be there, whether it be on the ability of firms to coordinate in concentrated markets, people are really questioning the learning that I grew up with back in the late ’90s.

So what I would say as to your question is I think that yes, the antitrust enforcement project, which I would say includes all of antitrust enforcement and all of merger enforcement, not just the agency, not just the courts, everything, is not doing as an effective job of deterring anticompetitive mergers as it should be. And part of that is because our aperture, again, we have focused too narrowly on the types of problems we’re examining. And by, again, saying we’re not just thinking about prices of products on their own but we’re thinking about it more broadly, it should lead to more effective antitrust enforcement and improved merger enforcement and protect markets.

Wyatt Fore:

It’s interesting you say that, Michael. Most of my work here at the firm is private enforcement, so we’re very often situated in a situation where we are plaintiffs on behalf of sophisticated entities. And so as a result, we are often doing conduct litigation. And it’s interesting because I would say in the bulk of my cases, if not the majority… Well, first of all, I’m always shocked at what antitrust defendants can get away with on the conduct side, and a lot of that begins at a point of a failed merger enforcement, either a merger that was anticompetitive that was allowed to proceed or a challenge that essentially fell apart for whatever reason, either the court didn’t buy the theory or what have you.

So it’s interesting to hear from your perspective about how economic learning has changed to the extent that there’s a real sense in the economy right now, not just among practitioners but among ordinary people and businesses, that antitrust enforcement, that there’s a serious underdeterrence problem, especially on the merger side because that’s really on the prospective side where future problems are identified in the first instance.

Jeff, I’m not so sure if you have anything to add or if your perspective is different as a person who’s practiced in this area for a longer time than I have.

Jeff Shinder:

No, my perspective is similar to what you both have articulated, and let me actually direct that perspective towards a question for Michael in terms of the guidelines because one of the things that I struggle with, and we’ve seen this in some of our travels here, ways that I can’t get into, less the protective word of gods strike me down but-

Michael Kades:

We don’t want that.

Jeff Shinder:

And we don’t want that. Where a dominant firm acquires technology or a startup where the merger, if you will, would fall within the potential competition framework, but it would be difficult to, when you get to the test of would the target entity have disciplined or does it discipline competition in any which way such that Section 7 standard can be met, it’s a difficult inquiry. Price effect would be impossible. This is more in the realm of innovation harm.

And one of the questions I have just analytically looking at the guidelines, and I’ll just make a statement that Michael, you can have at, it’s not clear to me the guidelines really energize the enforcement possibilities relative to those kinds of transactions where the ex-ante/ex-post question, if we just pose it relative to those kinds of deals, I’m not sure the guidelines as drafted will make much difference.

And so I want you to react to that because I feel like in an era of underenforcement, this is one of the realms where I think underenforcement has been a problem, but it’s a hard one to solve. I’ll stop editorializing and let you agree or disagree.

Michael Kades:

I agree that the types of cases you are talking about have been particularly hard for the agencies and the courts to grapple with.

And let me start with something I should have probably said back at the first question. The most interesting thing about the Clayton Act, which is the merger statute we’ve been talking about, is there are very few laws that I can think of where the concern is not what will happen, but what may happen or what will tend to happen. When you think about your average tort case, slip and fall, you have to prove all your facts, not to a certainty, but more likely than not. But the thing you’re proving is that there was actual negligence.

Here, Congress specifically wrote a law that said, “You don’t have to prove that the merger will be bad, just that it may be bad or that it may tend to create a monopoly.” And so what we’re really trying to do here is a threat of risk assessment, a risk assessment threat, not sure which one of those is grammatically correct.

So getting to the point that you’re raising, what do we do with where we have potential competition, where we have nascent competition? What we have in the law is Marine Bancorp where the court thought about two types of competition, what we would call if you buy somebody who is about to enter, when might that create a risk that it should be illegal, or where there’s somebody not in the market but their ability to enter it has a control, controls how the market operates. So people aren’t raising price because if they do, this outsider will just come in immediately. Those cases in and on themselves are difficult to win. I believe the last two times the FTC has brought those cases, they’ve been unsuccessful.

What I would like to point to you in the guidelines is I think a number of the principles we’re dealing with that could come up, we have developed specific guidelines to deal with. So yes, we have the potential competition idea that comes out of the Marine Bancorp line of cases, but that really deals with a very traditional market where it’s very concentrated and how will the new entrant affect competition? But we’ve also said, “Wait a minute. We’re going to think about more than just that type of competition.” If this involves a two-sided market, we’re going to think about, wait, are you acquiring a firm who threatens to disrupt the value of that platform?

So think about… Take the Microsoft case. What happens if instead of all the conduct Microsoft did to suppress Netscape, it had just simply bought Netscape? The concern would be Netscape, its browser, created the possibility that your operating system would not be as important to running programs as the browser. From our perspective, that’s the fact pattern. That violates the merger law. That would be illegal.

Similarly, talking about the ways in which a trend towards concentration or serial acquisitions can be illegal under the antitrust laws are additional ways to try to reach these issues that arise that deal with things like innovation and network effects and preserving dominance.

So certainly, we’re trying to incorporate all those sorts of ideas. Obviously, as we read the comments, hopefully we’ll find ways to improve upon that. But certainly we’re recognizing that the law protects markets from those types of anticompetitive mergers and provide guidance on how we would analyze them.

Wyatt Fore:

That’s really interesting to hear you say, especially because I know that potential competition and innovation harms are very top of mind among people recently.

I’m going to switch topics briefly and touch on labor. I believe that the Draft Merger Guidelines are the first explicit recognition that harms and abuses of market power in the labor product market are recognizable and also that the agencies are going to look for it. Now, obviously as all antitrust practitioners know, any competitive activities with respect to the labor market have been recognizable under legal precedent for gosh, 100 years at this point. I believe that the foundational precedents are either from the ’20s or ’30s.

So Michael, I’m curious about your perspective about why labor was included explicitly here and what you think that might indicate for merger policy moving forward?

Michael Kades:

So my snarky answer here is when basic principles aren’t articulated frequently, people act like they no longer exist, and that kind of is what happened with labor and antitrust. If we were to go take our time machine back to when any of these antitrust laws were passed, it was very clear that the concern was not just with increasing prices to the sellers, but actually a lot of the support for the antitrust laws came either from labor or from small producers, farmers, small businesses who felt like they were selling to dominant firms, what we would call monopolies.

So part of it is just reminding, on the very basic level, that these concerns matter, including labor and the creation of market power by the buyers has not been a focus. So I think there is value, a lot of value in telling the world we are thinking about these issues and how we would think about them. And in many ways, it is the same approach we use for thinking about creating market power on the seller side.

The third thing, and again, this reflects this interesting synergy, antitrust joke intended, between both popular public concern about dominant power and economic learning. It’s certainly the case, as I mentioned before, a lot of the comments we’re getting come from people who have been on the receiving end of mergers that may have limited competition or labor. Meanwhile, if you turn to where the economic literature is on labor, it’s become very clear that for a lot of reasons that now seem obvious, most employers have a significant amount of market power over their employees and most of antitrust, we spent decades thinking that employment markets were highly, highly competitive, like perfectly competitive, and that’s wrong. That doesn’t mean that every merger that affects labor is illegal because the question is, going back to my one-legged antitrust theory model, how does this merger impact competition for labor?

I think it’s those three points, I guess, which are one, if you don’t say things, people forget about them; two, we needed to really provide some guidance to what we were thinking about; and three, the focus really reflects both the public interests in antitrust, but also reflecting the understanding of labor markets that’s developed from the economist quantitatively.

Wyatt Fore:

Yeah. It’s interesting how there’s been so much empirical research, really in the last five to 10 years, about labor markets in particular and about the market powers of dominant employers. Perhaps it’s going out on too much of a limb, but it’s almost uncontroversial at this point that the fact that we really have a market-power problem in employment markets.

It’s also interesting to me that perhaps this is a generational difference, but I think that my generation, the millennials and people under us, are really reawakening to this fundamental labor problem in a way that felt like, with the fall of the Soviet Union and the ’90s and 200s peace and prosperity forever, it felt like that was a problem that we had “already solved.” And it’s interesting to me that there’s this intuitive understanding out there in the economy outside of antitrust practitioners that, okay, well, for a person selling their labor, your boss or your employer has a lot more power with respect to you than you do with respect to them, not only from the collapse of collective bargaining and other policies, but also just because your job means a lot more to you as a person than your labor does mean to your employer in the vast majority of cases.

So it’s interesting to me to see the recognition come out or this intuition come out in the empirical research and be reflected here. I apologize for the editorializing, but that was something that I was very excited to see in the guidelines.

The last labor question I have is that there’s been this trend towards national product markets antitrust parlance, that geographic markets that used to be very localized are now nationalized because of the advances in the economy. But there are exceptions to that, including hospitals. Because hospitals treat ordinary individuals, they have to go into the hospital. And it seems to me that labor markets are also an area where geographic markets tend to be more constrained in the way that other products don’t.

So I’m curious if you see future enforcement in labor markets to be partnering more with State Attorney Generals, much in the same way that the antitrust agencies partner very closely with State Attorney Generals in terms of healthcare because the geographic market tends to be more limited, that state AGs have a more vested interest in it and are more concerned with it. I’m curious, that aspect of labor merger enforcement, if you see this as an area where the federal government and state attorney generals are going to be partnering more in the future.

Michael Kades:

I’m going to take a little bit of a digression before I get there because you said a lot of really interesting things, Wyatt, so I wanted to react to a couple of them when you were talking about the development of the literature and labor economics.

When I went to college back in the late ’80s, I remember my first day of Intro to Economics or Intro to Macro or Intro to Micro, I can’t even remember which one, the professor stood up and he said there were three things all economists believed, and the first one was raising minimum wage will reduce employment and is bad for the economy. So I think at this point, if anything, we’re getting close to now economists would say almost the opposite. And a lot of that flows from the recognition that if there is market power in employment markets, the wages will be artificially too low. So that just shows the seismic shift in way people think about labor and economics and why I think it is. And to think that that sort of shift would not have an impact on how we think about antitrust enforcement would be odd at best.

I think you’re exactly right that employment markets are likely to be local, in part because not only are these matching markets, I think which is an important point to remind people in the sense that if I’m choosing between a Coke or a Pepsi, I just make that decision and I just go buy the one I want. I cannot quit the Department of Justice today and show up at the FTC tomorrow and say, “I’m here. I like this agency better.” I like them both equally by the way. Somebody has to offer me a job. That makes markets stickier, that make it harder.

But then on top of that, when we think about the issue, I took a digression, but I think I’m coming back to it, it could be, there are lots of jobs you can do in various places, factory worker, secretary, healthcare professional, but it means you have to move and you might not be able to move because your spouse may have a job or you don’t want to move because your children are in school and you don’t want to rip out the society you built locally. So absolutely there may be not a better example of local markets than employment markets.

So I think there is a real opportunity for there to be cooperation between the federal and state enforcers, and I hope that is something that occurs because in my view, antitrust enforcers, we need all the help we can get and working together is a great way to amplify our ability to protect markets.

Jeff Shinder:

This discussion of labor is fascinating. I’ll say, for the benefit of our listeners, because I have follow-ups that I could ask on the question of the antitrust treatment of labor, either generally or in the context of mergers, but I would like to reserve them for a later podcast that is laser-focused on those questions, which we will be doing. I have one more wonky question and then we should wrap up because we’re brushing against the podcast gods who say, “You should only go so long.” It’s so interesting.

I have a very different topic that I want to hear your thoughts on. So two-sided markets show up in the Merger Guidelines for obvious reasons, though there’s been a lot written on them. To date myself in this conversation, Michael, our horizons are similar, although I think I went to college a touch earlier than you did, but I remember in the ’90s when two-sided market arguments were first emerging in some of our cases, in the payments cases primarily, although not entirely, and if you told me back then that two-sided markets would become the law of the land in Ohio v. American Express, I would’ve bet a lot of money against that happening. But here we are.

I completely appreciate the economy has changed, platforms, networks, however you want to characterize them are ubiquitous and they raised particularized competition questions, and one of the things I liked about the guidelines was that they seem to have been written flexibly in terms of analyzing two-sided markets as it could be platform to platform competition, two-sided to two-sided competition. Something that is not necessarily two-sided could affect competition involving two-sided platforms. And sometimes, the issue is really intranetwork or intraplatform competition, which I see in the guidelines, and restraints that go towards those questions.

I’m really throwing this broadly at you. What of your thoughts on how the agencies have gone about addressing this question? Are there any comments? And it’s maybe hard to answer because the commentary just closed, you find interesting on this question, so you may not be able to answer that. And do you see the guidelines changing and influencing in a significant and material way, the Section 7 treatment of mergers that involve two static platforms?

Michael Kades:

I’m just going to admit I’ve not read the thousands of comments in the last six days or so.

Jeff Shinder:

Shame on you, Michael.

Michael Kades:

I’m just going to be honest and throw that out there. I’m not going to comment on the comments. And I think you are really picking up what we were trying to accomplish with platforms and multi-sided markets, that this is the perfect example, that you have to start with what’s the competition at stake? If you’re thinking about a merger between two platforms, the kind of questions you need to ask and the way you define the market is about how those platforms are competing and how it changes. You’re going to be thinking about is this a market where there’s tipping, i.e. that there are maybe two or three platforms competing to do the same thing? We expect over time or very quickly, one will get a slight edge and then become dominant. If that’s true, you’re not really interested in whether there are the participants particularly on a market, except to the way… They are not going to be a protection against the concerns of that merger.

Conversely, as you said, it’s not just about competition for a market, if a dominant platform is acquiring a major participant in such a way that their incentives and ability to discriminate or depress other participants, you’re asking a very different series of questions and the type of… Particularly if you’ve determined it’s a dominant platform, that there aren’t really alternatives. Again, you’re less interested in what other platforms are out there. You’re really interested about how competition within the market is changing. And so that not only raises the question, it also provides the parameters to define the market.

I would just say about American Express, absolutely. Supreme Court decision, law of the land, but let’s be clear that the Supreme Court was really focused here on a very specific type of platform that they saw as really unique in the sense of what they call the transaction platform where basically only the platform is required for the transaction to occur and it’s always a one-to-one correspondence on that. To have a credit card network, it connects one buyer with one credit card company. That’s not the traditional multi-sided market we think about, say, even going back to old economy, newspapers. The newspaper gets funding from advertisers that allows them to charge less for the newspaper that attracts readers, and you have more readers, it means the advertisers are willing to pay more. It’s not that one-to-one correspondence.

So sorry, I got a little off track there, but I felt compelled to talk about American Express.

Jeff Shinder:

Yeah, Michael, I will say, and I don’t want to descend into a two-sided market discussion that could be its own podcast, you’re preaching to the choir here and highlighting the simultaneity that is key to the American Express decision.

One of the things that I was worried about after that decision is that everything would be characterized as a two-sided market when the feature that Justice Thomas highlighted in that opinion is not necessarily present. So your point is extremely well-taken. We’ll reserve that for another day because that is another pretty deep topic that we do not have time to fully delve into.

I’d like to wrap up because I don’t want to offend the podcast gods, but I wanted to leave you really both, if you have any final thoughts on this topic, the guidelines, what they represent in this moment in time, and anything… I’ll start with Wyatt because I want to finish with Michael, but Wyatt, if you have any thoughts that you want to close the conversation with, and then we’ll end with Michael who is our guest.

Wyatt Fore:

Sure. I don’t have too much else to add. This has been a really interesting conversation. The only thing I’ll say is that I’ve been really excited to read the guidelines. I think that they’re really interesting and they’re written in a very accessible way and focused on the law and I think in a way that I think is really refreshing and wonderful.

And also, I would just like to give a plug for all of our public servants like Michael and the rest of the folks who worked on these guidelines. I know that so much hard work went into it. I always think that some of the smartest people in the entire world who think about these issues are on staff at the antitrust agencies and they often get criticized from people from the outside, but I just want to say that I hope that when they see those criticisms, they also know that there’s a lot of people cheering them from the sidelines and who are very appreciative of their work.

So I would extend that to Michael and anyone who’s listening in the government, know that you have a lot of fans who are very excited to see what you’re working on.

Jeff Shinder:

I second that. Michael, to our audience, especially those who are in-house counsel or business people at companies who do deals or to practitioners especially, just practically, people who are going to be counseling or making decisions against the backdrop of the new guidelines, is there any final thoughts that you’d like them to consider as these guidelines are finalized and go into effect?

Michael Kades:

The hope here is one, the guidelines provide guidance to the staff about how to think about mergers. Secondly, to the corporations and folks thinking about mergers, hopefully what they should be getting out of this is not sort of an argument about legal niceties, but that these guidelines suggest that what we’re interested in is really how the market’s working, and that should hopefully demystify the process. It’s not simply a question of somebody runs a diversionary analysis or some other complicated regression and it pops out a magic answer, that really we’re interested in, as I think I’ve repeated almost ad nauseum, how is competition working and how is that going to change? And that should make them hopefully more accessible to everybody.

Jeff Shinder:

Okay. That was really helpful. And this entire discussion, it was so interesting, Michael, we might just have to have you back. Maybe we’ll bring you back after they’re finalized or maybe we’ll bring you back just talk about one of these issues with more of a laser focus. But this was great, so deeply appreciate it. I strongly second Wyatt’s comments with the work that went into this and the hard work that’s done at the agencies at a time when antitrust matters more than ever. So on that note, we can conclude.

Michael Kades:

I just wanted to say I do really appreciate both of you recognizing the talent and the dedication of the civil servants. It’s my favorite part of the job is actually interacting with the career staff at the DOJ, so I do really appreciate you guys calling them out.

Jeff Shinder:

Yeah. On that note, have a good day, everybody, and we will be back with more episodes on the guidelines and on the state of antitrust coming up. Thank you.

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