The FTC recently required divestitures in two merger investigations (here and here), based largely on the majority’s conclusion that
[when] a proposed merger significantly increases concentration in an already highly concentrated market, a presumption of competitive harm is justified under both the Guidelines and well-established case law.” (Emphasis added).
Commissioner Wright dissented in both matters (here and here), contending that
[the majority’s] reliance upon such shorthand structural presumptions untethered from empirical evidence subsidize a shift away from the more rigorous and reliable economic tools embraced by the Merger Guidelines in favor of convenient but obsolete and less reliable economic analysis.
Josh has the better argument, of course. In both cases the majority relied upon its structural presumption rather than actual economic evidence to make out its case. But as Josh notes in his dissent in In the Matter of ZF Friedrichshafen and TRW Automotive (quoting his 2013 dissent in In the Matter of Fidelity National Financial, Inc. and Lender Processing Services):
there is no basis in modern economics to conclude with any modicum of reliability that increased concentration—without more—will increase post-merger incentives to coordinate. Thus, the Merger Guidelines require the federal antitrust agencies to develop additional evidence that supports the theory of coordination and, in particular, an inference that the merger increases incentives to coordinate.
Or as he points out in his dissent in In the Matter of Holcim Ltd. and Lafarge S.A.
The unifying theme of the unilateral effects analysis contemplated by the Merger Guidelines is that a particularized showing that post-merger competitive constraints are weakened or eliminated by the merger is superior to relying solely upon inferences of competitive effects drawn from changes in market structure.
It is unobjectionable (and uninteresting) that increased concentration may, all else equal, make coordination easier, or enhance unilateral effects in the case of merger to monopoly. There are even cases (as in generic pharmaceutical markets) where rigorous, targeted research exists, sufficient to support a presumption that a reduction in the number of firms would likely lessen competition. But generally (as in these cases), absent actual evidence, market shares might be helpful as an initial screen (and may suggest greater need for a thorough investigation), but they are not analytically probative in themselves. As Josh notes in his TRW dissent:
The relevant question is not whether the number of firms matters but how much it matters.
The majority in these cases asserts that it did find evidence sufficient to support its conclusions, but — and this is where the rubber meets the road — the question remains whether its limited evidentiary claims are sufficient, particularly given analyses that repeatedly come back to the structural presumption. As Josh says in his Holcim dissent:
it is my view that the investigation failed to adduce particularized evidence to elevate the anticipated likelihood of competitive effects from “possible” to “likely” under any of these theories. Without this necessary evidence, the only remaining factual basis upon which the Commission rests its decision is the fact that the merger will reduce the number of competitors from four to three or three to two. This is simply not enough evidence to support a reason to believe the proposed transaction will violate the Clayton Act in these Relevant Markets.
Looking at the majority’s statements, I see a few references to the kinds of market characteristics that could indicate competitive concerns — but very little actual analysis of whether these characteristics are sufficient to meet the Clayton Act standard in these particular markets. The question is — how much analysis is enough? I agree with Josh that the answer must be “more than is offered here,” but it’s an important question to explore more deeply.
Presumably that’s exactly what the ABA’s upcoming program will do, and I highly recommend interested readers attend or listen in. The program details are below.
The Use of Structural Presumptions in Merger Analysis
June 26, 2015, 12:00 PM – 1:15 PM ET
Moderator:
- Brendan Coffman, Wilson Sonsini Goodrich & Rosati LLP
Speakers:
- Angela Diveley, Office of Commissioner Joshua D. Wright, Federal Trade Commission
- Abbott (Tad) Lipsky, Latham & Watkins LLP
- Janusz Ordover, Compass Lexecon
- Henry Su, Office of Chairwoman Edith Ramirez, Federal Trade Commission
In-person location:
Latham & Watkins
555 11th Street,NW
Ste 1000
Washington, DC 20004
Register here.