Christine blogs about the Whirlpool-Maytag merger and its antitrust problems. Law Blog has the story, as well. Both mention the American Antitrust Institute which opposes (vehemently) the merger.
In fact, the AAI has never met a merger it didn’t find anticompetitive, so its opposition should be taken with a grain of salt. Then again, I’ve never met a merger I thought was anticompetitive, so perhaps the same disclaimer applies to me . . . .
Nevertheless, here’s a couple of thoughts:
The FTC and the DOJ in my experience are pretty resistant to the “emerging foreign competition” argument, which is being claimed here (China is the source) (although there are exceptions). The problem, of course, is that it can be difficult to convince skeptical regulators that a not-quite-apparent (to them, anyway) threat is real, or that the mere potential for foreign entry into contestable markets is enough to restrain anticompetitive behavior. Often these just aren’t winning arguments against the “show us the numbers now” gambit, although they should be.
Meanwhile, here, as always, it comes down to market definition. The AAI says the combined company would have too much power in the top-loading washer “market” (scare quotes mine). “Of particular concern, the white paper explains, is the “market” for top-loading washersâ€”a unique â€œAmericanâ€? product for which there is no foreign competition.” (Notice the sly “and foreign competitors just won’t compete in this “unique” American market” argument). Now, the AAI is worried on other accounts, as well. And I haven’t seen the cross-elasticity study. But this doesn’t even pass the smell test. Does anyone seriously believe that Americans just wouldn’t go in for those fancy-pants front-loading washers if the price of their beloved top-loaders shot up? I mean, who wants to bend down to do laundry . . . you know, except for loading and unloading those uniquely-American front-loading dryers. Because, um, they’re different. Dryers and washers are apples and oranges, dontcha know. Um . . . I gotta go.
But perhaps because the companies maintain separate top- and front-loading divisions (I don’t know whether they do or not), or because some front-loader manufacturers just don’t make top-loaders (and vice versa), or because, currently, front-loaders seem to cost a bit more, the two are in separate “markets.” It’s a screwy way to determine an economically-relevant market: a more-or-less ad hoc assessment of competitor and customer comments, combined with a flawed dissection of internal memos, some casual empiricism (agency staff have been known to take field trips to local retailers to suss out “the market”), and a little econometrics on the side. (For more on the problems of market definition, see my article, Hot Docs vs. Cold Economics).
At any rate, here’s my casual empiricism. If you go to epinions.com you’ll find that there are currently 30 manufacturers listing top-loading washing machines. I realize some (like Kenmore) may be selling products manufactured by Whirlpool or Maytag, and others may not be available in the US, etc. Nevertheless, every single one of these manufacturers, along with the even greater number who make front-loaders, to say nothing of new entrants, could begin and/or step up top-loader sales in response to a price increase. Where’s the problem?
I started out as an antitrust lawyer 20 years ago. Seems the antitrust laws have not expanded since then to account for global competition. Too bad for us.
Josh: Arch Coal and Oracle are, indeed, encouraging. And I do applaud the agencies for attempting to undertake the hard econometric look. Nevertheless, I get the sense that there is still a strong sense by the lawyers in the agencies that econometric data are woefully imperfect (as undoubtedly they are) and unreliable. And there is still (also very sensibly) much resistance to simulations. The economists are, unfortunately, not the ones making the initial enforcement decisions, and, later in the process, it is clear that the economists are working for the lawyers, not the other way around. The lawyers (as I believe David Scheffman has pointed out more than once) don’t necessarily understand the economic analyses and are, in those cases, dismissive of them. Etc. I suppose the state of affairs is, as you say, improving, but, particularly in those all-important initial decisions, ad hockery still looms large I fear.
Nice post Geoff. You are certainly right that market definition by assertion is a scary thing, and perhaps at its scariest when accompanied by inferences drawn from aggressively styled internal memos and the like.
A few related thoughts:
(1) Recent merger cases (I am thinking Arch Coal and Oracle) suggest that judges are placing limits on the role of customer testimony and complaints in merger cases. I think this is a good thing.
(2) I think that you are being a little bit rough on the agencies here. To be fair, the agencies do regularly carry out relatively sophisticated attempts at demand analysis. Dont get me wrong — I would like to see less reliance on casual empiricism and more econometrics in market definition analysis all the way around — but it is my general sense that the state of analysis is improving in this regard.