The Next Administration Must Finish the Merger Guidelines Revision

By: John Kwoka (Pro Market)

One of the key achievements of the Biden administration’s antitrust policy has been the release of updated Merger Guidelines, which aim to more rigorously scrutinize mergers and acquisitions following decades of lax enforcement that have led to increased industry concentration and reduced competition. (Full disclosure: I contributed to the development of these new Merger Guidelines during my tenure as Chief Economist to Chair Lina Khan at the Federal Trade Commission.) Finalized last December by the Federal Trade Commission and the Department of Justice (collectively, “the agencies”), the new Merger Guidelines have been widely praised for addressing several issues that were previously overlooked or underemphasized. These include greater focus on labor markets and buyer power, platform mergers, vertical mergers, mergers that eliminate potential competitors, and mergers that entrench dominant firms. However, two critical areas—structural presumptions and the treatment of efficiencies—remain contentious and require further attention to strengthen merger enforcement.

Why are these issues so controversial? Much of the debate stems from how the Supreme Court has interpreted them. In its 1963 Philadelphia National Bank decision, the Court established that for mergers of significant size in already concentrated markets, the increase in concentration alone is sufficient to presume that the merger is anticompetitive. Then, in its 1967 Procter & Gamble decision, the Court asserted that purported efficiencies from a merger cannot be used to justify an otherwise anticompetitive consolidation. These rulings have long guided the structural presumption and treatment of efficiencies that the agencies and lower courts are expected to apply.

Nevertheless, mainstream economics has frequently criticized these judicial principles and has largely convinced lower courts to disregard them. Instead, economists have developed complex methodologies to evaluate the very factors that the Supreme Court deemed less relevant, such as the precise effects of a merger on prices, output, and quality in highly concentrated markets, as well as the quantification of efficiencies in all but the most extreme cases. This shift has resulted in lengthy and resource-intensive merger reviews for the agencies, complicating their efforts to challenge potentially harmful consolidations. Moreover, these complex assessments have offered little clarity or accuracy in enforcement outcomes.

The new 2023 Merger Guidelines attempted to mitigate the adverse impact of these prevailing practices and made meaningful progress, but ultimately did not resolve the underlying issues. Addressing these shortcomings should be a priority for the administration’s antitrust agenda going forward. But how did this disregard for structural presumptions and efficiency considerations arise in the first place? Where do things stand now? And what steps should be taken to fully rectify the situation?

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