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Is America’s Merger Fever Breaking?

Above photo: Demetrius Freeman/The Washington Post via Getty Images.

The US Justice Department and Federal Trade Commission’s new merger guidelines represent a radical departure from the neoliberal assumptions that have long underpinned US antitrust enforcement.

By directing agencies to focus on market structure and power, the guidelines could stop runaway consolidation and help preserve US democracy.

In the summer of 1982, the United States government sent corporate America a love letter. President Ronald Reagan’s top antitrust official, William Baxter, who made no secret of his desire to use his position to assist the country’s largest companies, issued the Justice Department’s new merger guidelines, instructing staff how to determine whether a merger violated antitrust laws and should be blocked. Baxter’s new rules made it clear to big business that federal agencies would no longer limit their ability to amass power. An era of nearly unrestricted corporate consolidation followed.

The 1982 merger guidelines were akin to a coup. Reagan officials were eager to gut America’s robust antitrust laws but knew they could not persuade Congress to do so. By issuing a set of guidelines that purported to interpret the law, they effectively rewrote it. The 1950 Anti-Merger Act directed antitrust agencies and the courts to block any merger that “may” substantially reduce competition. Alarmed by the role that monopolies had played in the rise of German fascism, legislators sought to safeguard US democracy from the corrosive effects of economic concentration. But Baxter set this law aside and issued guidelines that welcomed consolidation, declaring that “mergers generally play an important role in a free enterprise economy.”

The ploy worked. Judges began to rely on the guidelines more than the actual statutes, greenlighting numerous problematic corporate mergers and making it increasingly difficult for regulators to curtail monopolistic abuses. Instead of challenging this subversion of antitrust laws, Democratic administrations embraced the bigger-is-better neoliberal logic and even took it further. The most recent revision to the merger guidelines, implemented under President Barack Obama in 2010, raised the thresholds for market concentration, thereby enabling an even wider range of mergers to escape scrutiny.

Most Americans have undoubtedly never heard of the merger guidelines. Nevertheless, the world we live in, with its extreme inequality, corrupted democracies, and widespread despair, has been shaped by the countless corporate mergers that have been allowed over the past 41 years.

This is why new merger guidelines proposed by President Joe Biden’s administration are far more significant than they may seem. Developed by Federal Trade Commission Chair Lina Khan and Jonathan Kanter, head of the Justice Department’s antitrust division, the draft guidelines are now open for public comment. If approved, they will likely be as consequential for America’s political economy as the 1982 guidelines.

The draft guidelines stand out in several ways. First, they abandon the deference to big-business interests that has long characterized US merger policy. Second, they recognize the importance of limiting corporate power, reflecting what we have learned in recent years about the fatal blind spots of the “consumer-welfare” standard, as the set of principles undergirding US antitrust policy came to be known.

By closely following the anti-merger provisions enacted by Congress, which sought to prevent industry consolidation while it was still in its “incipiency,” Khan and Kanter’s proposed guidelines aim to reorient how judges rule on antitrust cases.

This reorientation is urgently needed. Under the consumer-welfare framework, judges have largely disregarded market power and even competition. Today’s courts are focused on price effects. To block a merger, the government must prove, through complex economic modeling, that it would lead to near-term price increases. Merger cases currently often entail judges sifting through dueling econometric analyses, with corporations winning if the high-priced economists they hire persuade a judge that a merger would generate even minimal cost savings, regardless of the adverse effects on competition.

In fact, the complex models that have dominated American antitrust policy are untethered from the law and reality. A comprehensive study by economist and former FTC adviser John Kwoka showed that more than 80% of the large mergers that US regulators have allowed have led to price increases. But that is hardly the only consequence. Consolidation has enabled companies to drive down wages by reducing competition for labor, costing the median American worker an estimated $10,000 in lost income annually. Some industries have become so concentrated that America’s capacity to produce essential goods and services has been severely compromised.

Merger reviews have strayed far from common sense. How else can one explain many of the mergers that have been approved over the past decade? Under the current guidelines, regulators approved the disastrous 2010 merger between Live Nation, the country’s largest concert promoter and artist manager, and the ticketing monopoly Ticketmaster. Facebook was allowed to acquire Instagram and WhatsApp, two vibrant potential rivals to its social-networking dominance. And the list goes on.

Khan and Kanter’s new guidelines seek to fix this broken system, directing agencies to evaluate mergers based on market structure. Would a merger lead to an insufficient number of competitors? Would it reinforce the dominance of an already-dominant firm? Would it eliminate an upstart rival? If the answer to any of these questions (and others) is yes, the merger should be blocked.

The new guidelines correct other policy missteps. For decades, merger reviews have largely overlooked big corporations’ power as buyers of goods and labor. The draft proposal directs antitrust agencies and the courts to scrutinize mergers that would increase concentration in labor markets or give a corporation enough leverage over suppliers to deprive smaller businesses of fair opportunities to compete. The guidelines also address the distinct competition issues created by online platforms.

If the new merger guidelines succeed in reinvigorating US antitrust enforcement, they will create a more level playing field for small businesses, farmers, and workers.

The effects of such a transformation would go beyond economics. During the two years of debate that preceded the passage of the 1950 Anti-Merger Act, lawmakers repeatedly emphasized the idea that democracies thrive only when power is widely dispersed. As Senator Estes Kefauver, the bill’s co-sponsor, observed, concentration allows a handful of executives to “decide the policies and the fate” of far-flung communities, leaving “millions of people [to] depend helplessly on their judgment.” By mitigating this powerlessness, the new guidelines could help preserve the social underpinnings of American democracy.

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