New CEI Paper on New Merger Guidelines

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Any day now, the Federal Trade Commission (FTC) will release new merger guidelines. FTC Chair Lina Khan has not yet released a draft of the revisions to the public. Nor is she likely to, in a break with longstanding agency practice. 

Despite Khan’s lack of transparency, she has made clear in a request for public comments (CEI’s submission is here) and in a recent speech that she intends to take merger policy back to much stricter pre-1980s standards.

In a new CEI paper, former FTC Chair Timothy Muris and former FTC Economics Bureau Director Bruce Kobayashi caution against this neo-Brandeisan regression in merger policy. The paper contains both a history of merger policy that puts the new revisions in context. It also shows why the structure-based merger policy Khan favors is harmful to both consumers and businesses. 

Under a structure-based merger policy, a merger would be automatically blocked if it increased market concentration above a certain threshold. This threshold is arbitrary and can give the FTC enormous discretion.

Muris and Kobayashi instead prefer a consumer-focused merger policy that would block only mergers that would cause consumer harm. Big isn’t automatically bad, as neo-Brandeisians allege. Enforcement should only come when big behaves badly by raising prices or restricting supply.

Khan’s analysis relies heavily on an FTC report from 1948 which claimed that industrial concentration in the U.S. was increasing. This was false, and the study’s authors later disavowed it. But this did not come to light until after Congress passed major antitrust legislation in 1950. Much of this legislation proved unworkable in practice and is no longer enforced. But Khan wants to revive it anyway.

Muris and Kobayashi also explain the case law history that gave hard-won experience about the limits of activist merger policy, and describe some of the advances in economic understanding that have helped merger policy evolve beyond its 1950s and 1960s excesses.

It is a fascinating tale, and today’s antitrust enforcers would do well not to let this history repeat itself. Unfortunately, that may be exactly what is about to happen.The full paper is here. Jessica Melugin and I submitted comments to the FTC about the merger guideline revisions during their public comment period. See also CEI’s new Eye on FTC project.