Well, they have done it. On Dec. 18, the Federal Trade Commission (FTC) and U.S. Justice Department (DOJ) issued their final 2023 merger guidelines, as an early New Year’s gift (nicely sandwiched between Hanukkah, which ended Dec. 15, and Christmas) of the porcine sort.
The two agencies try to put lipstick on this pig by claiming that the guidelines “emphasize the dynamic and complex nature of competition,” an approach that supposedly “enables the agencies to assess the commercial realities of the United States’ modern economy when making enforcement decisions.” But no amount of verbal makeup prevents this porker from oinking, despite the valiant best efforts of the antitrust agencies’ talented and highly respected chief economists (Susan Athey and Aviv Nevo) to argue otherwise.
The cosmetic changes to the previous draft merger guidelines consist primarily in softening the language regarding the impact of structural presumptions. The reality, however, is that the draft’s structural presumptions remain, as does the draft’s reduction in concentration numbers, lower Herfindahl-Hirschman Index thresholds, and all. In response to some public comments, economic and evidentiary analysis previously relegated to appendices was inserted into the main guidelines. But this, once again, is merely a cosmetic fix (akin to “freshening up” the pig’s rouge), not a substantive change.
Also, the 13 special guidelines (really, theories of alleged competitive harm) in the previous draft were trimmed to 11. This was done by removing an economically challenged characterization of vertical mergers (the previous Guideline 6) and deleting language indicating that the special guidelines’ theories were “not exhaustive of the ways that a merger may substantially lessen competition” (former Guideline 13). Old Guideline 6 is not specifically disavowed, however, and the Guideline 13 limitation is retained, showing up in revised words that carry the same message on page 4 of the final guidelines (“factors contemplated in these Merger Guidelines neither dictate nor exhaust the range of theories or evidence that the Agencies may introduce in merger litigation”). The retained “non-exhaustive” language implicitly rules out any safe harbor for nonproblematic mergers, thereby injecting costly uncertainty into merger planning.
Most regrettably, the final guidelines, like the draft version, fail to recognize the substantial economic benefits that countless mergers generate. Such benefits include efficiency-induced cost reductions; innovation-induced quality improvements and new product generation; and reallocation of resources to higher-valued uses. Prior merger guidelines recognized the real possibility of efficiencies, and vowed to provide guidance to let nonproblematic mergers proceed. Not so the final 2023 guidelines.
Furthermore, the final guidelines also adopt a very stringent view of cognizable efficiencies, imposing conditions that will almost never be met in the real world. They also blandly assert that alternatives to mergers, such as contracts, may be employed to achieve claimed efficiencies, without considering that such alternatives may not be achievable in the real world.
Finally, in selectively citing cases, the guidelines ignore the immense changes in U.S. antitrust case law over the last four decades, reflecting an economics-based appreciation for the role of business arrangements in advancing efficiency and consumer welfare. The specter of the discredited primary focus on “increasing concentration” and harm to competitors, which animated old and dated antitrust case law, still haunts these guidelines.
In short, the pig is still a pig. Sophisticated courts hopefully will hear the oinks, and agree with Geoffrey Manne that “[t]he primary effect of these updated guidelines is to reduce their utility to courts as a reflection of current legal and economic understanding.” The courts should also recognize that the 2023 Guidelines are, in essence, little more than an extended discussion of theories of anticompetitive behavior that provide no true guidance as to what mergers will not be challenged. As such, the guidelines do not guide, they pontificate. They should be withdrawn as soon as possible.