The New Merger Guidelines Are Being Written by Lawyers: That's a Problem
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The Department of Justice and Federal Trade Commission recently proposed new merger guidelines to block mergers that enable large companies to get larger by devouring smaller rivals and to gain more power to raise prices. But here’s the thing: not all mergers have this effect. Some can actually be good for consumers when they enable the merged firms to reduce costs by increasing output and product variety and to pass on some of the cost savings from those scale and scope economies in lower prices. 

Tim Wu, former Special Assistant to President Biden for Technology and Competition Policy, characterized the new merger guidelines as the Biden Administration’s most important economic policy of 2023.  That’s a bold claim.  In theory, they should therefore help the antitrust agencies to distinguish between socially harmful and socially beneficial mergers.  However, in practice, the guidelines are unlikely to serve that purpose because they are written and implemented by lawyers. Lawyers are not trained to formulate a sound economic policy, assess the policy’s performance, and reform the policy appropriately. Lawyers are trained to learn and follow the law, as they understand it. This has served their profession well, but has not always served the public well.

Philip Howard argues that lawyers share a philosophy of the correctness of the law, such as compliance with a rule, regardless of the law’s actual economic and social effects. Thus, as government policymakers, lawyer-legislators oppose any effort to reduce anticompetitive barriers to entry to legal practice, even though these result in roughly 80% of the public not being  served by the legal profession. That figure would be much lower if the American Bar Association and state legislatures applied a consumer welfare standard  and allowed  competent individuals who, for example, graduated with an undergraduate degree in law, completed a vocational course in a specialized area of law, or even received a Masters degree from Yale Law School, to provide legal assistance to the public.  

Instead of drawing on evidence and thinking carefully about how a public policy affects people’s welfare, lawyers in government emphasize advocacy and the prosecutorial style of congressional hearings. Dennis Carlton characterizes the proposed merger guidelines as reading like a legal brief, written in an apparent attempt to convince readers, perhaps judges, that many old cases, often decided prior to 1970 and based on now rejected economic reasoning, justify a return to more aggressive antitrust enforcement.  Such a return would represent a demotion of the use of economic evidence and a rejection of the Chicago School’s decades-long influence on judges to pay attention to the economic effects of their rulings on consumers.

Learning from past cases is important and historical evidence on the performance of merger policy could motivate reforming the guidelines. However, the antitrust authorities ignore the retrospective evidence that antitrust merger policy has had little effect on improving consumer welfare and that there is no evidence of a recent systematic decline in competition in the United States at the level of relevant antitrust markets.

The antitrust authorities who crafted the new guidelines also do not include plausible predictions of their potential benefits. Carl Shapiro points out that the proposed guidelines do not commit to evaluating mergers on whether or not they are likely to harm consumers due to enhanced market power. Consistent with lawyers’ focus on the correctness of law, Assistant Attorney General Jonathan Kanter has little problem with rejecting this application of a consumer welfare standard because it “does not reflect the law  passed by Congress and interpreted by the courts.”   

Instead of formulating the new merger guidelines as sound economic policy, informed by retrospective empirical evidence on the effects of previous merger policy and supported by plausible predictions that the proposed reforms will benefit consumers and the economy, the antitrust authorities merely assert that the reforms should be seen as a restoration of the plain meaning of the antitrust laws.  However, despite the authorities’ recent efforts to enforce the antitrust laws more aggressively, the biggest businesses have continued to win merger cases and get bigger. 

Thus, it is far from clear that the antitrust authorities will be able to successfully implement their vision of a more effective merger policy that is consistent with the newly proposed merger guidelines, let alone do so in a way that improves the U.S. economy and consumer welfare.  It is more likely that Americans will continue to depend primarily on the strength of market competition, through new entrants, new technologies, and new products, to correct significant instances of anti-competitive behavior that may arise from socially harmful mergers.

Clifford Winston is a senior fellow the Brookings Institution. 

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