Mergers are on Congress’ mind, clearly. Legislation aimed at increasing both the powers and budgets of antitrust enforcers are plentiful, with technology companies being the primary focus.
For example, Sen. Josh Hawley’s (R-MO) Trust-Busting for the Twenty-First Century Act (S. 1074) would prohibit acquisitions exceeding $1 million by companies the Federal Trade Commission (FTC) designates as a “dominant digital firm.” Another bill, the Merger Filing Fee Modernization Act (S. 228), seeks to increase the filing fees for larger mergers.
Government officials are also eager to sound the alarm on tech acquisitions. The FTC released a report last year on over 600 tech acquisitions that occurred since 2010. But the alarmism disregards the dynamic process of creative destruction—one that often results in more innovation and increased competition.
3. Prohibiting Anti-Competitive Mergers Act of 2022
The Prohibiting Anti-Competitive Mergers Act of 2022 (S. 3847) is one of the more partisan bills included on the list. Introduced by Sen. Elizabeth Warren (D-MA) in March, the bill has zero Republican sponsors in the Senate and House.
The legislation outright bans certain mergers, without the need for the ordinary review process. Prohibited mergers include: (1) those worth more than $5 billion; (2) ones that lead to 33 percent market share in a relevant market; (3) ones that lead to 25 percent market share in a relevant labor market; and (4) those that reach certain increases on the Herfindahl-Hirschman Index.
Here we find what’s known as the relevant market fallacy. If antitrust regulators want to find a monopoly, it’s easy. They need only to define the relevant market as narrowly as necessary, which often involves excluding relevant competitors. And the Prohibiting Anti-Competitive Mergers Act would grant more power to the already emboldened FTC and Department of Justice.
The bill’s prohibition on mergers worth more than $5 billion would inhibit companies from improving products on behalf of their consumers. Google’s acquisition of Mandiant, which was announced in March and valued at $5.4 billion, is a prime example. Google sought to fortify its cloud computing services by purchasing and integrating the cybersecurity firm. That acquisition, even if more vertical in nature, would be prohibited.
Affected companies would have the opportunity to appeal. However, as CEI Senior Fellow Ryan Young argues, the prospect of success is less than optimistic:
While companies could appeal this automatic denial in court, they would have to prove the Federal Trade Commission, the Justice Department, or both acted in an “arbitrary and capricious” manner in denying a merger. That is an uphill climb that stacks the deck against companies, and may dissuade many from even trying.
Further, the bill allows for retroactive review and unwinding of mergers that lead to a market share over 50 percent. That raises constitutional concerns on the prohibition of ex post facto laws.
There’s little doubt that the sponsors of the legislation have large tech platforms in mind. Rep. Mondaire Jones (D-NY), lead sponsor of the House version (H.R. 7101), mentioned Facebook’s acquisition of Instagram by name.
The problems with the Prohibiting Anti-Competitive Mergers Act are abundant. Fortunately, the bill is unlikely to gain traction.. It may also be intended to draw contrast by making other legislation, like the American Innovation and Choice Online Act, appear more moderate in comparison, and may be intended more to make a statement than to become actual policy. For competition’s sake, let’s hope it stays that way