The Biden administration’s federal antitrust regulators—the U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC)—have been widely perceived as actively discouraging mergers and acquisitions. This reflects the rejection of a longstanding bipartisan understanding that government would only oppose proposed M&A transactions that are likely to harm competition. The Biden approach arguably threatens to harm the American economy by deterring economically beneficial tie-ups. The Trump administration may wish to consider rejecting it and returning to the prior bipartisan understanding that was more “merger neutral.”
M&A Benefits
M&A activity enhances the American economy in several important ways.
Perhaps most fundamentally, M&A activity is key to a “market for corporate control” that allows business actors to identify and seek to acquire assets that are being badly managed or that could be more productive if employed elsewhere. This promotes the reallocation of scarce resources to their highest-valued uses—improving economic efficiency and raising output.
M&A-related asset reallocation has a variety of specific benefits.
It may help drive innovation by enabling dynamic improvements in the use of assets that yield new and improved products. This may particularly be the case when M&A joins firms with complementary assets that can be melded to “work together” more effectively.
It may help generate cost and price-reducing scale economies, by “spread[ing] . . . high fixed costs over a larger volume of production”.
Scale economies also enable U.S. firms to compete more effectively in international markets. Scale economies may yield higher rates of innovation-producing R&D, as well as gains in marketing and production.
M&A may also raise corporate earnings and create new wealth, thereby benefiting workers’ retirement accounts and corporate shareholders.
M&A Costs
M&A activity may, however, also impose economic costs through reduced competition. That is the concern of American antitrust laws, which are jointly enforced by the DOJ and the FTC. The U.S. Supreme Court has long recognized that promoting consumer welfare is the overarching goal of American antitrust enforcement.
Section 7 of the Clayton Act prohibits mergers and acquisitions when the effect “may be substantially to lessen competition, or to tend to create a monopoly.”
A “horizontal” merger between direct competitors may weaken the intensity of competition in the market in which they operate. It may do this by encouraging tacit anticompetitive coordination among competitors to reduce output or raise prices. It may also allow a significant merged firm to unilaterally reduce output, raise prices, or reduce quality. In both cases, customers of the merged firm suffer, and consumer welfare is reduced.
A “vertical” merger between firms at different levels of a market’s distribution chain generally is less problematic than a horizontal tie-up. A vertical merger does not reduce direct competition and may allow complementary assets to be joined—each of which is a beneficial effect. But a vertical merger may create problems if it denies competitors of the merged firm access to vital upstream “inputs” or downstream “outputs.” To the extent this reduces competition, consumers will suffer.
Finally, a “conglomerate” merger between firms in unrelated markets seldom if ever could present a competitive problem. Old, pre-1980s theories that a major firm in one market could “leverage” its market power into unrelated sectors and thereby harm competition have been largely discredited. They were “based on theories no longer considered valid under U.S. law or economic theory,” according to a 2020 U.S. government report to the Organization for Economic Cooperation and Development (OECD).
The Broken Antitrust-Enforcement Consensus
Over more than three decades prior to the Biden administration, a bipartisan antitrust-enforcement consensus had developed that was focused on promoting consumer welfare. This consensus was applied to merger enforcement through a series of bipartisan enforcement guidelines issued jointly by DOJ and the FTC.
First issued in 1982, the guidelines were revised successively in 1984, 1992, 1997, and 2010. The guidelines took into account market concentration (the number and market shares of competitors) as an initial enforcement screen for identifying those mergers that warrant a closer look. Actual enforcement decisions, however, featured economics-based tests to assess whether any particular proposed merger was likely to be anticompetitive.
The guidelines were designed to provide clarity to businesses regarding whether federal antitrust enforcers were likely to challenge particular proposed mergers.
Importantly, prior to the Biden administration, the guidelines consistently stressed that they were not anti-merger. Rather, as stated in the 2010 guidelines, the FTC and DOJ “only s[ought] to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral.”
In other words, federal antitrust enforcement was not generally anti-merger; it was solely concerned with mergers that would harm competition and consumers.
Things quickly changed, however, under the Biden administration. New leadership at DOJ and the FTC adopted a merger-skeptical (some would argue essentially anti-merger) enforcement approach that broke with decades of bipartisan consensus.
This was part of the Biden administration’s broader progressive “new antitrust” populism approach (or “New Brandeis School” approach) that claimed to be a return to antitrust’s historical roots.
The new approach featured opposition to corporate bigness and a rejection of modern antitrust economics (and its focus on consumer welfare). It also sought to take into account a host of new policy factors that were previously deemed outside the scope of antitrust. These included, for example, using antitrust to favor labor interests, protect the environment, promote income redistribution, and combat discrimination.
Biden Antitrusters Actively Discouraged Mergers
The “New Brandeis” enforcers adopted a more aggressive merger-enforcement strategy. This strategy, however, has met with limited success, as revealed by a data-rich 2024 Progressive Policy Institute study:
PPI’s analysis reveals that . . . [t]he Biden enforcers are forcing companies to abandon anticompetitive mergers at the highest rate in 30 years. . . . [T]he rate at which the agencies attempt to block mergers by litigating preliminary injunctions before federal court or administrative judges is also at its highest level. The Biden agencies’ “win” rate in court, however, is below the historical average, reflecting an intense effort that has not yet fully paid off.
The greatest effect of Biden antitrust enforcement, however, has been to discourage mergers from being proposed in the first place:
- The new 2023 FTC-DOJ merger guidelines do not include prior guidelines’ commitment to leave non-anticompetitive mergers alone. They also increase uncertainty by suggesting a wide variety of dubious potential theories that might spark agency challenges, in tension with the rule of law. The new guidelines thereby “effected a stealth tax on a contemplated merger and possibly induce private parties not to pursue a merger that would be otherwise lawful for fear of steep compliance costs.”
- A revised October 2023 FTC-DOJ pre-merger notification rule imposes major additional filing burdens on parties proposing a merger by requesting huge amounts of additional information unrelated to a merger’s actual competitive impact. Like the new merger guidelines, this change acts as an implicit “merger tax” that discourages many beneficial mergers from being proposed. It also offends the rule of law, by requiring private parties to bear compliance costs unrelated to their legal duties.
- The FTC has abandoned a longstanding policy of granting early clearance to plainly nonproblematic transactions, causing unwarranted uncertainty that discourages even routine mergers.
- Unlike previously, the FTC and DOJ have discouraged proposed settlements aimed at curing the anticompetitive aspects of a merger, while allowing the beneficial aspects to proceed. This may be causing the abandonment of some mergers.
A Possible Way Forward
The new Trump administration may wish to reconsider recent policies widely seen as merger-skeptical. Possible changes that it might consider studying include:
- Rewriting the 2023 merger guidelines to adopt a more neutral stance, stressing that only anticompetitive mergers are targets; revising anti-merger structural presumptions; focusing on consumer welfare; and taking full account of the efficiency benefits that mergers may generate.
- Pulling and reissuing a new pre-merger notification rule that specifies only information directly relevant to the potential anticompetitive impact of a merger will be requested.
- Revising DOJ and FTC enforcement policy to allow mergers to proceed when reasonable proposed settlements rectify anticompetitive aspects of a transaction.
- Clarifying that enforcers will quickly clear proposed mergers that lack competitive problems, thereby allowing them to be consummated.
- Clarifying that enforcers’ settlement requirements will be directed at curing specific competitive problems, not at imposing new bureaucratic limitations on future acquisitions and nongermane oversight of business practices.
- More generally, issuing presidential guidance directing the FTC and DOJ (1) to focus only on harm to competition and consumer welfare in reviewing mergers; and (2) to avoid any policy pronouncements that appear to disfavor or discourage mergers.
There are strong arguments that, taken together, these actions could help restore the longstanding bipartisan “merger-neutral” policy that existed prior to the Biden administration. Such an approach would aim to eliminate recent perceived obstacles to the consideration of many beneficial mergers, thereby benefiting the overall American economy.