Push-Back Against DOJ & FTC’s Proposed Merger Guidelines

On July 19th, 2023, the Federal Trade Commission (FTC) and Department of Justice (DOJ) released an updated version of Merger Guidelines, which details thirteen updated principles with which the aforementioned government agencies will use to assess the legal compliance of both horizontal and vertical mergers and acquisitions in the future to antitrust laws. The purpose of drafting new guidelines was to replace and improve the FTC and DOJ’s Vertical Merger Guidelines, published in 2020, and Horizontal Merger Guidelines, published in 2010. Following the release of the new Merger Guidelines draft, the agencies invited the public to comment on the updated guidelines over a period of sixty days, which expired on September 18th. During and after this commentary period, various policy and economic analysts have publicly disapproved of the new guidelines, claiming they will serve as a detriment to the pro-consumer benefits of mergers and disincentivize business innovation. 

American Consumer Institute Policy Analyst Isaac Schick is among the many who have expressed discontent with the updated guidelines. He believes that in writing the new principles, the agencies relied upon the preceding landmark antitrust case Brown Shoe Co., Inc. v. United States too heavily, having referenced it 14 times in the document. Said case, known famously as Brown Shoe, constituted the barring of a merger between shoe businesses Brown Shoe Company and G.R. Kinney Co even though their combined market share was negligible, at only 7.2%. Many analysts including Isaac take issue with this specific case being used  strongly as a reference for the future due to the fact that the courts ruled Brown Shoe unlawful knowing cost-saving efficiencies that would have resulted from the merger, had it not been struck down, could have had pro-consumer and pro-competitive benefits. Many economists have reason to believe that the Supreme Court’s ruling on this case has led to higher prices in the shoe industry today. According to Isaac Schick, “In the FTC’s continuing effort to undermine the CWS’s (Consumer Welfare Standard) role in antitrust litigation, they have resurrected Brown Shoe’s long-dormant and ill-preserved argumentation… The integrity of the FTC’s role as an institution is at stake,” (Schick, Isaac). The policy analyst goes as far as to say that their merger guideline update’s inspiration from Brown Shoe is indicative of the FTC’s loss of credibility as an institution. 

Fred Ashton, Competition Economics Analyst at American Action Forum, expands upon the above argument further by claiming the new enforcement policy doesn’t prioritize consumer welfare as paramount and, in fact, jeopardizes future economic activity and innovation. He believes that the new structural parameters by which mergers are considered illegal – which constitute a shared market-share cap of 30% and combined HHI of 1,800, as opposed to the previous 2,500 – are problematic due to their emphasis on market structure as opposed to the pro-or-anti-competitive effects consumers face. Fred Ashton specifically references the plight of start-ups, as a result of these new guidelines. Startups often look to venture capital funding to overcome insufficient funding obstacles. He states, “The threat of increased enforcement based on market competition puts the dynamic startup environment and innovation at risk,” (Ashton, Fred). Ashton argues the new guidelines will restrict startups and the innovations they provide markets by withholding their access to venture capital funding. 

The revised merger principles attempted to fulfill the following three objectives that government agencies believe were not adequately met prior: (1) for mergers to be treated with enhanced levels of both statutory interpretation and consideration of precedent cases, (2) for criteria with which mergers are assessed to be more specific, accessible, and transparent, and (3) for the principles to account for the more modern economy that exists today, as opposed to that of decades ago (“FTC and DOJ”). Economy and policy analysts, such as Fred Ashton and Isaac Schick criticize these new guidelines and question the FTC’s credibility. Isaac Schick believes the updated principles’ reliance on precedent and inapplicable specifications will detract from the pro-consumer and pro-competitive effects of potential future mergers. Fred Ashton reinforces this claim and expresses concern regarding the new guidelines jeopardizing startup funding and therefore preventing economic innovation. Now that the public commentary period has concluded, the FTC and DOJ response to concerns regarding the updated merger guidelines is awaited.

References

Ashton, Fred. “Comments for the Record: Draft Merger Guidelines.” AAF, 14 Sept. 2023, www.americanactionforum.org/comments-for-record/comments-for-the-record-draft-merger-guidelines/. 

“FTC and DOJ Seek Comment on Draft Merger Guidelines.” Federal Trade Commission, 1 Sept. 2023, www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines. 

Schick, Isaac. “Brown Shoe Isn’t Good Precedent.” The American Consumer Institute Center for Citizen Research, 3 Oct. 2023, www.theamericanconsumer.org/2023/10/brown-shoe-isnt-good-precedent/.