During 2016 it became fashionable in certain circles to decry “lax” merger enforcement and to call for a more aggressive merger enforcement policy (see, for example, the American Antitrust Institute’s September 2016 paper on competition policy, critiqued by me in this blog post). Interventionists promoting “tougher” merger enforcement have cited Professor John Kwoka’s 2015 book, Mergers, Merger Control, and Remedies in support of the proposition that U.S. antitrust enforcers have been “excessively tolerant” in analyzing proposed mergers.
In that regard, a recent paper by two outstanding FTC economists (Michael Vita and David Osinski) is well worth noting. It makes a strong (and, in my view, persuasive) case that Kwoka’s research is fatally flawed. The following excerpt, drawn from the introduction and conclusion of the paper (Mergers, Merger Control, and Remedies: A Critical Review), merits close attention:
John Kwoka’s recently published Mergers, Merger Control, and Remedies (2015) has received considerable attention from both antitrust practitioners and academics. The book features a meta-analysis of retrospective studies of consummated mergers, joint ventures, and other horizontal arrangements. Based on summary statistics derived from these studies, Kwoka concludes that domestic antitrust agencies are excessively tolerant in their merger enforcement; that merger remedies are ineffective at mitigating market power; and that merger enforcement has become increasingly lax over time. We review both his evidence and his empirical methods, and conclude that serious deficiencies in both undermine the basis for these conclusions. . . .
We sympathize with the goal of using retrospective analyses to assess the performance of the antitrust agencies and to identify possible improvements. Unfortunately, Kwoka has drawn inferences and reached conclusions about contemporary merger enforcement policy that are unjustified by his data and his methods. His critique of negotiated remedies in merger cases relies on a small number of transactions; a close reading reveals that a number of them are silent on the effectiveness of the associated remedies. His data sample lacks diversity, relying heavily on a small number of studies conducted on a small and unrepresentative set of industries. His statistical methodology departs from well-established techniques for conducting meta-analyses, making it impossible for readers to assess the strength of his evidence using standard statistical tools. His conclusions about the growing permissiveness of enforcement policies lack substantiation. Overall, we are unpersuaded that his evidence can support such broad and general policy conclusions.
Hopefully, the new leadership at the Federal Trade Commission and at the Justice Department’s Antitrust Division will carefully scrutinize this and other recent research on mergers in devising their merger enforcement policy. Additional research on the effects of mergers, including an evaluation of their static and dynamic efficiencies, is highly warranted. Enforcers should not lose sight of the fact that disincentivizing efficient mergers could undermine a vibrant market for corporate control in general, as well as precluding the net creation of economic surplus in specific cases.