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Merger Guidelines

The Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission recently called for public comments to aid their revision of the Merger Guidelines. Those comments were due in April 2022 and many thousands of them are hosted on the agencies’ site.

This page, maintained by the Thurman Arnold Project at Yale, contains a small set of curated economic materials drawn from those public submissions. We have focused on comments from economists with research and policy experience, especially those that highlight relevant research findings. This selection of substantive and constructive comments will help agency staff and leaders reform the Guidelines to achieve more effective protection of competition and consumers.

The commenters are listed in alphabetical order, and each name is followed by the file of their comments as well as any supporting literature that was attached to the comment. The list below will continue to be curated and expanded by the TAP team over the summer of 2022.

The material raised by the commenters is re-organized in the table that follows. Each substantial topic forms a row. Relevant research papers that will aid reform of the Merger Guidelines on that topic are located in the columns of the table.

Summaries of Selected Papers

Nancy L. Rose and Carl Shapiro
Link to Comment
Rose and Shapiro recommend revising the Horizontal Merger Guidelines to strengthen merger enforcement in three critical areas. First, they advocate applying the Hypothetical Monopolist Test to define narrow markets, consistent with how the Agencies treat unilateral price effects. Second, they recommend giving more emphasis to dynamic competition, including acquisitions of nascent competitors and competition to develop new products. Third, Rose and Shapiro suggest that the updated guidelines include a section on Mergers Between Competing Employers that explains how the Agencies handle mergers that harm workers by increasing the market power of employers.

American Antitrust Institute (AAI)
Link to Comment

Chris Conlon
Link to Comment
Conlon describes the ways in which incorporating common ownership effects—based on the premise that owners of horizontal product competitors want to lessen competition because they internalize its impacts in their portfolios—would alter prospective merger evaluation. He shows that it would lead to poor enforcement to begin including common ownership in an HHI measure without a policy to account for the step up in market power that necessarily entails. Conlon suggests that the Agencies invest in collecting high-quality data about financial ownership to support future empirical studies., Conlon suggest moving beyond binary definitions of whether a firm is “in” or “out” of the relevant market and presents diversion ratios based on consumer data as a valuable alternative to strict market definition in econometric analysis.

Florian Ederer
Link to Comment | Link to Supporting Literature
Informed by research on pharmaceutical acquisitions, Ederer’s paper Killer Acquisitions develops a theoretical model demonstrating how incumbent firms may have incentivizes to acquire  start-ups they predict will be future rivals in order to shut down their projects and suppress that competition. As the primary harm caused by “killer acquisitions” is to innovation, Ederer recommends that the revised HMGs place greater emphasis on the importance of innovation to consumer welfare. Additionally, as this innovation is typically generated by nascent competitors with small market shares, the HMGs should provide analytical alternatives to HHI thresholds for evaluating mergers of this type.

Leemore Dafny & Nancy Rose:
Link to Comment | Link to Supporting Literature | Link to Supporting Literature
As consolidation in the healthcare market has been driven primarily by serial acquisitions of healthcare providers, Dafny recommends that the revised HMGs enable the Agencies to consider the relevant buyer’s acquisition history (and the cumulative effects of prior acquisitions) when reviewing a proposed merger. Second, Dafny’s 2019 study found that cross-market mergers—specifically, the acquisition of hospitals within the same state but outside of the buyer’s geographic market—translated to significant price increases ex-post. These mergers were not challenged by the Agencies because their relevant geographic markets did not overlap to the extent that the merger triggered the structural presumption. Therefore, Dafny advises that the Agencies emphasize the competitive effects of cross-market mergers over the formal delineation of relevant markets.

Martin Gaynor
Link to Comment
Professor Gaynor recommends that the DOJ and FTC review the empirical evidence on the impacts of mergers that has materialized in the last decade. The Agencies’ joint report would serve as a complement to the revised HMGs, establishing the evidentiary basis for the analysis of proposed mergers.

Nathan Miller
Link to Comment | Link to Supporting Literature
Miller addresses the treatment of repositioning and entry in merger review. Miller’s recent research with Peter Caradonna and Gloria Sheu supports taking a more skeptical approach to the entry defense, for two reasons. First, successful entry often would make a merger unprofitable, so it may be appropriate to infer the presence of entry barriers or the absence of a viable entrant. Second, only rarely will a merger cause previously unprofitable entry to become profitable, a necessary condition for the entry defense.

Steven Salop
Link to Comment | Link to Supporting Literature
Salop recommends lowering the HHI level currently associated with the structural presumption. He outlines alternative anticompetitive presumptions for particular settings: these include elimination of potential entrants and foreclosure of the maverick seller or buyer. Although Salop does not advocate for integrating the HMGs and the VMGs, he emphasizes the importance of recognizing how both horizontal and vertical mergers may have coordinated and unilateral effects. Actively drawing from both sets of guidelines will enable the Agencies to litigate merger cases more effectively.

Martin Schmalz
Link to Comment

Thomas Wollmann
Link to Comment
In analyzing mergers which do not face the pre-merger notification requirement under the Hart-Scott-Rodino (HSR) Act, Wollman has found evidence of stealth consolidation—the merger of two firms whose transaction value falls just below the standard reporting threshold.. In order to address stealth consolidation of small firms, Wollmann advises that the HSR thresholds be lowered. In addition, Wollmann demands greater scrutiny of small mergers, especially those which involve geographic overlap or occur within industries of concern (e.g., dialysis clinics, funeral homes, supermarkets).

Zack Cooper, Zarek Brot-Goldberg & Sttuart Craig
Link to Comment | Link to Supporting Literature

Cooper et al. draw attention to hospital mergers. Cooper’s research shows that hospital mergers which result in elevated healthcare costs tend to fall below the standard reporting threshold or are structured as “strategic affiliations.” As the consequences of lessened competition among hospitals are severe, Cooper advises that Agencies’ review all hospital mergers and strategic affiliations regardless of whether the transactions are above or below the HSR requirement.

Fiona Scott Morton
Link to Comment | Link to Supporting Literature | Link to Supporting Literature | Link to Supporting Literature | Link to Supporting Literature
Scott Morton suggests that integrating the HMGs and VMGs may benefit the Agencies in litigation by clarifying the relationship between the “horizontal” and “vertical” theories of harm. Regarding transactions that take place in digital markets, Scott Morton also recommends that the revised HMGs recognize the significance of interoperability to platform competition. In a joint paper published in 2021, she and Steven Salop propose several amendments to the HMGs which would address concerns about “false negatives” in antitrust enforcement, or the under-deterrence and insufficient interdiction of anticompetitive mergers.

Daniel O’Brien

Link to Comment | Link to Supporting Literature

Werden
Link to Comment

Marshall Steinbaum, Ioana Marinescu & José Azar
Link to Comment