Antitrust Magazine

112 Pages·2016·3.59 MB·English

FALL 2016 • Volume 31 • Number 1
ANTITRUST
IN THIS ISSUE
MERGERS
The Way Forward
Direction of Enforcement
Litigating the Fix
Modifying Consent
Decrees
Private Equity
Cash Tender Offers
Competitive Effects
Analysis
Price Discrimination
Markets
Using Economist Experts
Views from the Bench
Quantitative Techniques
in EU
Discovery Practice:
EU vs. U.S.
ARTICLES
Signaling
FTC Consumer Redress
Cartel Investigations
But-For World
Mergers: Understanding the
Rules of the Road
From the American Bar Association
2015 Annual Review of
Antitrust Law Developments
Product Code:5030635
Publication Date:2016
Page Count:487
Trim Size:7 x 10
Format:Paper
Pricing:1 Copy: $129.00 AT Section Members / $169.00 Regular Price
(cid:3)FOR ALMOST 40 YEARS, Antitrust Law related to antitrust injury, standing,
Developmentsand its annual supplements have damages, the availability of arbitration,
been recognized as the most authoritative and the requirements to maintain a class action,
comprehensive set of research tools for the limitations on recovery for foreign
antitrust practitioners. The 2015 Annual Review purchases, the standards for injunctive
of Antitrust Law Developmentssummarizes relief, motions to dismiss, and motions for
developments during 2015 in the courts, summary judgment.
at the agencies, and in Congress.
● Antitrust law developments in industry-
Among other topics, the 2015 Annual Review specific sectors, including health care,
discusses: energy, communications, and transportation.
● Important judicial decisions and government ● International developments in the European
enforcement across the major areas of Union, Brazil, Canada, United Kingdom,
antitrust law, including agreements in and other jurisdictions.
restraint of trade, monopolization, M&A,
joint ventures, intellectual property, and
Visit our website at www.shopaba.org
exemptions and immunities.
● Court rulings on issues central to private
antitrust litigation, including developments
ANTITRUST • FALL 2016 • VOL. 31 • NO. 1
T A B L E O F C O N T E N T S
Mergers:
Understanding the Rules of the Road
Cover Photo: SuperStock
Effective Presentation of Expert Testimony for the
C o v e r S t o r i e s
Government in a Merger Litigation
Editor’s Note by Stephen Mohr and Sophia Vandergrift ....................52
U.S. Merger Enforcement: The Way Forward
Economic Testimony in Mergers
by Gregory G. Wrobel......................................5
by Timothy F. Bresnahan................................56
Mergers: Litigating the Fix
by David Gelfand and Leah O. Brannon.......................10 LITIGATION PRACTICE: NOTES FROM THE FIELD
Views from the Bench in Merger Cases
Modifying Merger Consent Decrees to Improve
by Lisa C. Wood.........................................59
Merger Enforcement Policy
by Steven C. Salop .......................................15
INTERNATIONAL MERGER DEVELOPMENTS
Private Equity and Antitrust: A New Landscape
The Use of Quantitative Economic Techniques in
by James A. Keyte and Kenneth B. Schwartz.....................21 EU Merger Control
Cash Tender Offers Under the HSR Act: by Thomas Buettner, Giulio Federico, and Szabolcs Lorincz..........68
Protecting an Efficient Market for Corporate Control
Convergence and Divergence in the EU and
by John D. Harkrider.....................................28 U.S. Approaches to Document Requests in
Meet the New “BOSS”: Competitive Effects Analyses Complex Mergers
in Staples/Office Depot by Vanessa Turner and Max Kaufman.........................76
by Matthew J. Reilly and Chetan Sanghvi ......................34
Price Discrimination Markets in Merger Cases:
A r t i c l e s
Practical Guidance from FTC v. Sysco
by Ian Simmons, Sergei Zaslavsky, and Lindsey Freeman............40 Sending the Wrong Message?
Antitrust Liability for Signaling
Using Economist Experts in Merger Litigation:
by Paula W. Render, J. Bruce McDonald, and Thomas D. York .......83
Three Essays
Time to Stop Digging: Failed Attacks on FTC Authority
Four Roles for the Defense Economist in
to Obtain Consumer Redress
Merger Litigation
by David C. Vladeck......................................89
by Daniel M. Wall ....................................49
U.S. Corporate and Individual Cartel Investigations:
Navigating the Intersection of Antitrust and
A N T I T R U S T
White Collar Enforcement
ISSN 0162-7996
by Graciela M. Rodriguez, Wendy Huang Waszmer, and Alan R. Dial..96
This magazine is published three times a year (Spring, Summer, and Fall) by the
Section of Antitrust Law, American Bar Association, 321 North Clark Street, Chicago, What Is a “But-For World”?
IL 60654.
The subscription price for members of the Anti trust Section is included in their dues. by Justine S. Hastings and Michael A. Williams .................102
Annual sub scriptions for institutions and individuals not eligible for ABA membership
are $75 per year ($85 for Alaska, Hawaii, U.S. Possessions and foreign countries).
Single copy price is $30.
Please address all subscription mail to Section of Antitrust Law, American Bar D e p a r t m e n t s
Association, 321 North Clark Street, Chicago, IL 60654. Nonprofit standard postage
paid at Atlanta, GA. Merger Policy and the Debate over the
Unsolicited original manuscripts and letters to the editor are welcome and should Direction of Antitrust Enforcement—
be sent to Tina Miller, at [email protected]. For more information on our publishing
procedures and policies, visit us at www.americanbar.org/publications/antitrust_ Letter from Section Chair William C. MacLeod .............3
magazine_home.html.
The views expressed herein are the authors’ only and are not necessarily those of Council Highlights.....................................65
the authors’ firm, the American Bar Association, or the Section of Antitrust Law.
Copyright © 2016 American Bar Association
F A L L 2 0 1 6 · 1
A N T I T R U S T
M A G A Z I N E
Executive Editor Editorial Board Chair
Tina Miller Gregory G. Wrobel
81 Seventy Acre Rd. Vedder Price PC AMERICAN BAR ASSOCIATION
Redding, CT 06896 222 North LaSalle St.
SECTION OF ANTITRUST LAW
tel [phone] Chicago, IL 60601
faaxn 2tit0r3us/[email protected] [email protected] CONTINUING LEGAL
EDUCATION CALENDAR
Articles Editor Articles Editor Litigation Practice Editor
Lisa A. Jose Fales Ellen Meriwether Lisa C. Wood
Venable LLP Cafferty Clobes Meriwether Foley Hoag LLP 2 0 1 7 – 2 0 1 8
575 7th St., NW & Sprengel LLP 155 Seaport Boulevard
Washington, DC 20004 1101 Market St. Boston, MA 02110
Philadelphia, PA 19107
FEBRUARY 2, 2017
Consumer Protection Conference
Associate Editors
ATLANTA, GA
Damian G. Didden Belinda S Lee Sonia K. Pfaffenroth
(cid:0) (cid:0) (cid:0)
Wachtell Lipton Rosen & Katz Latham & Watkins LLP Washington, DC
51 West 52nd St. 505 Montgomery St.
New York, NY 10019 San Francisco, CA 94111 Jeffrey Prisbrey MARCH 29–31, 2017
Charles River Associates 65th Spring Meeting
Laila Haider Kellie Lerner 1201 F St., NW
Edgeworth Economics LLC Robins Kaplan LLP Washington, DC 20004 WASHINGTON, DC
1225 19th St., NW 601 Lexington Ave.
Washington, DC 20036 New York, NY 10022 Michael Schwalbert (cid:0) (cid:0) (cid:0)
Missouri Attorney General’s
John D. Harkrider Michael A. Lindsay Office MAY 8, 2017
Axinn, Veltrop & Harkrider LLP Dorsey & Whitney LLP 815 Olive Street Global Private Litigation Conference
114 West 47th St. 50 South 6th St. St. Louis, MO 63101
New York, NY 10036 Minneapolis, MN 55402 AMSTERDAM, THE NETHERLANDS
Ian Simmons
Jeffrey A. Jaeckel Christine S. Meyer O’Melveny & Myers LLP (cid:0) (cid:0) (cid:0)
Morrison & Foerster LLP NERA Economic Consulting 1625 Eye St., NW
2000 Pennsylvania Ave., NW 360 Hamilton Ave. Washington, DC 20006 JUNE 1–2, 2017
Washington, DC 20006 White Plains, NY 10601 Antitrust in the Americas
Robert A. Skitol
Janis Kestenbaum Robin L. Moore Drinker Biddle & Reath LLP MEXICO CITY, MEXICO
Perkins Coie LLP Federal Trade Commission 1500 K St., NW
700 13th St., NW 600 Pennsylvania Ave., NW Washington, DC 20005 (cid:0) (cid:0) (cid:0)
Washington, DC 20005 Washington, DC 20580
Joshua Soven AUGUST 10–15, 2017
James A. Keyte Andrea Murino Gibson Dunn & Crutcher LLP
ABA Annual Meeting
Skadden Arps Slate Meagher Goodwin Procter LLP 1050 Connecticut Ave., NW
& Flom LLP 901 New York Ave., NW Washington, DC 20036 NEW YORK CITY
4 Times Square Washington, DC 20001
New York, NY 10036 Vanessa A. Turner (cid:0) (cid:0) (cid:0)
Jason O’Connor Allen & Overy LLP
William J. Kolasky Federal Trade Commission Avenue de Tervueren 268A OCTOBER 2017
Hughes Hubbard & Reed LLP 600 Pennsylvania Ave., NW Brussels 1150 Belgium
Antitrust Merger Workshop
1775 I St., NW Washington, DC 20580
Washington, DC 20006 Willard K. Tom WASHINGTON, DC
Jack E. Pace III Morgan, Lewis & Bockius LLP
James G. Kress White & Case LLP 1111 Pensylvania, Ave., NW (cid:0) (cid:0) (cid:0)
Baker Botts LLP 1155 Ave. of the Americas Washington, DC 20004
1299 Pensylvania Ave., NW New York, NY 10036 NOVEMBER 16, 2017
Washington, DC 20004
Fall Forum
WASHINGTON, DC
Section of Antitrust Law Council Liaison
(cid:0) (cid:0) (cid:0)
Jonathan I. Gleklen
Arnold & Porter LLP
FEBRUARY 14–16, 2018
601 Massachusetts Ave., NW
Washington, DC 20001 International Cartel Workshop
PARIS, FRANCE
Design & Production
Gary Archambault
Archambault Design LLC Please visit http://www.ambar.org/antitrust
PO Box 969/552 Torrington Rd.• Litchfield, CT 06759
for detailed conference information.
860/496-0740
[email protected]
2 · A N T I T R U S T
D E P A R T M E N T S
restrictions on competitors’ conduct, more resources for the
F A L L 2 0 1 6
agencies, and a Presidential advisor on antitrust policy.
The agencies have weighed in on the debate as well. All
from the Section Chair
three Commissioners at the FTC and the Assistant Attorney
General at the Antitrust Division have given their assess-
Merger Policy and the ments of cases brought, cases won, cases lost, and the state of
enforcement policy. In speeches available at https://www.ftc.
Direction of Antitrust
Enforcement
Merger policy has preoccupied the debate over the
vigor and direction of antitrust enforcement. Skeptics
and critics of recent enforcement question whether
Dear Colleagues,
the agencies have pursued enough deals, whether
T
HE MAGAZINE THAT
the courts have allowed too many, and whether the
consistently sets the stan-
dard for practical and read- remedies have been effective.
able analysis of competition
and consumer protection, gov/ and https://www.justice.gov/atr, the agency leaders gave
ANTITRUST offers another issue that detailed accounts of the decisions they made on the front
blends hot topics and serious scholarship. Here we examine lines of enforcement and the decisions the courts made in rul-
the latest developments in merger enforcement and the pol- ing on the challenges. The officials maintain that neither
icy informing it, but the contents cover much more ground, aggregate measures of economic concentration nor small
from liability for price signaling to redress in consumer pro- samples of individual transactions can diagnose the compet-
tection cases, to new criminal exposure for cartel defendants. itive effects that the agencies examine in extensive investiga-
As always, the articles include healthy helpings of economics. tions. They note that economists have discounted the pre-
This issue could not have come at a better time. Merger sumption pitting concentration against competition.
policy has preoccupied the debate over the vigor and direc- All of these perspectives illuminate important aspects of
tion of antitrust enforcement. Skeptics and critics of recent economic policy and the role of merger policy. How do we
enforcement question whether the agencies have pursued square the critics’ reviews with the officials’ reports?
enough deals, whether the courts have allowed too many, and Let’s hear from the witnesses. We don’t yet have the per-
whether the remedies have been effective. spectives of the practitioners and experts who stepped into
In an Issue Brief last April (https://www.whitehouse.gov/), the courtrooms to present the evidence, articulate the theo-
the Council of Economic Advisors listed 13 industry cate- ries, and argue the law that governs the outcomes. And we
gories and observed that the shares of the top 50 firms in 10 haven’t heard from the judges who determined the outcomes
of them had increased in the last 15 years. The categories were (although their opinions portend where they might come out
so broad that the top 50 firms accounted for less than half the in the debate). This issue of ANTITRUST rounds out the
revenue in all but one—utilities. But increases of up to11 record. In the following pages, those who litigated and ruled
percentage points inspired CEA to suggest that “record lev- on the cases give their accounts. Competition and consumers,
els” of M&A had left behind “more market concentration, not to mention practitioners and commentators, will bene-
higher profits for a few firms, and declining entry, all of fit from the knowledge that these articles impart.
which could result from less competition.” After acknowl- For more on mergers, the October issue of The Antitrust
edging the enforcement efforts of the agencies, CEA con- Sourceoffers tips on handling nonparty witnesses in merger
cluded, “There may however be scope for additional actions litigation, and a Roundtable discussion of substantive and
to be taken . . . .” procedural issues facing merger practitioners today, as well as
Delving more deeply into transactional data, the Center coverage of late-breaking topics we have come to expect from
for American Progress reviewed academic studies of selected our online authors at The Source.(cid:3)
mergers and concluded that decades of inadequate antitrust
enforcement has allowed companies to acquire market power With best regards,
and raise prices. Its report, “Reviving Antitrust” (https://www.
americanprogress.org/), cited research that purported to find
price increases after the agencies allowed mergers to proceed, William C. MacLeod
and called for stronger presumptions of illegality in horizon- Chair, ABA Section of Antitrust Law
tal mergers, increased scrutiny of vertical deals, tougher 2016–2017
F A L L 2 0 1 6 · 3
NEW from the
American Bar Association
TO: Antitrust Section Members
Consumer Protection Law
FROM: Wiiliam C. MacLeod, Chair,
Section of Antitrust Law
Developments Second Edition
SUBJECT: Nominating Committee
(cid:3)PURSUANT TO THE BYLAWSof the Section of Antitrust
Product Code:5030634
Law, the Chair of the Section is called upon to appoint a
Publication Date:2016
Nominating Committee composed of five Section members
Page Count:1400
to make nominations to the Section membership for open
Trim Size:7 x 10
Format:Hardbound positions among the Officers and Council to be elected at
the next Annual Meeting. I am pleased to announce that
Pricing:
$475.00 List Price / I have appointed the following distinguished members of
$399.00 AT Section Member the Section to serve on the 2016–2017 Nominating
Committee:
(cid:3)THE ABA SECTION Howard Feller, Chair
OF ANTITRUST LAW
McGuire Woods LLP
continues its longstanding tradition of scholarship and service for Gateway Plaza
the practitioner with this Second Edition of Consumer Protection 800 East Canal Street
Law Developm ents(CPLD). Consumer protection laws seek to Richmond, VA 23219-3916
correct a misimpression that a product or service has a greater [email protected]
value than it actually does and, by doing so, prevent consumer
injury. Understanding this objective, however, is a good deal Willam L. Greene
Stinson Leonard Street
easier than under standing the many federal and state laws
150 South 5th Street • Suite 2300
designed to accomplish it.
Minneapolis, MN 55402-4238
Since its first edition in 2009, the mission of CPLDhas been to
[email protected]
synthesize consumer protection law into a coherent and objective
summary of court decisions, enforcement actions, agency
Jeffrey A. LeVee
regulations, and guidelines, in an important and evolving area Jones Day
of law. CPLDprovides information on administrative litigation, 555 South Flower Street • Floor 50
consumer class actions, Lanham Act and Sherman Act litigation, Los Angeles, CA 90071-2300
and express, implied, and establishment claims; qualitative and [email protected]
quantitative consumer perception analysis; industry standard,
modified industry standards, and non-standard product testing; M. Howard Morse
Cooley LLP
statistical analysis and more.
1299 Pennsylvania Avenue, NW • Suite 700
This second edition also covers significant consumer
Washington, DC 20004-2400
|protection developments since the last hardbound publication,
[email protected]
including the addition of a separate chapter on the Consumer
Financial Protection Bureau (CFPB), as well as significant
Christine J. Sommer
discussions about the impact of new technologies on consumer WilmerHale
protection law, the expansion in state consumer protection law 1875 Pennsylvania Avenue, NW
enforcement, and ever growing importance of international Washington, DC 20006-3642
legal precedent. Consumer Protection Law Developmentsis a [email protected]
comprehensive and up-to-date analysis of this important and
complex subject and the perfect companion treatise to Antitrust Any member of the Section wishing to make
recommendations to the Nominating Committee
Law Developments.
should convey comments to the Nominating Committee
Chair or to any other member of the Committee.
Visit our website at www.shopaba.org
4 · A N T I T R U S T
Editor’s Note: attention than might be anticipated from the small number
of litigated merger cases. Mergers and the court cases they
draw are often highly visible and fast paced; media sources,
U.S. Merger analysts, and legislators often depict these deals as flash points
for debate on wider issues of economic, fiscal, trade, and
even social and political policy; and the record of the agen-
Enforcement:
cies in merger cases is often used as a litmus test for their over-
all effectiveness as antitrust enforcers.
The Way Forward As this issue of ANTITRUST was proceeding to publica-
tion, Acting Assistant Attorney General Renata Hesse and
FTC Chairwoman Edith Ramirez gave speeches and The
Economisthad a cover theme that touched in important ways
BY GREGORY G. WROBEL on the public face of mergers and merger enforcement.2Key
passages from the speeches serve well to illustrate issues that
animate current public discourse on the process and focus of
U.S. merger enforcement.
T
HE COVER THEME OF THIS FALL Enforcement Goals: Fairness, Transparency,
2016 issue of ANTITRUST focuses on U.S. Technical Analysis
merger enforcement, with articles offering prac- Hesse focused on public perceptions of economic fairness,
tical and forward-looking guidance for antitrust and using court cases to make the technical analysis of
attorneys, economists, courts, and in-house antitrust enforcement more accessible, while Ramirez focused
counsel who must decode antitrust law for their business on safeguarding the competitive process without seeking to
managers. This column affords some leeway for broader com- reshape markets to achieve broader policy goals.
ments on the focus of U.S. merger enforcement, which has
been shaped in large part by legal standards and economic Hesse
principles adopted by courts over many years under Section
At bottom, these diverse voices agree on the basic proposition
7 of the Clayton Act, rather than by economic, fiscal, and
that it is unfair to allow companies to grab unearned monop-
trade policy goals that a new administration may pursue.
oly power over markets that they can wield at the expense of
For the most part, modern U.S. merger enforcement consumers, workers, and would-be competitors. By and
encompasses: (1) compliance with premerger notification large, I think this increased public interest in antitrust and
requirements for larger deals; (2) focused investigations in a competition is a good thing. It is good for the public—
small percentage of deals by the Department of Justice Anti - because antitrust enforcement promotes the interests of the
trust Division and Federal Trade Commission (in some cases public over the power of the few—and it is also good for
with participation by state attorneys general); the (3) negoti- antitrust—because it keeps enforcers focused on the ulti-
mate goal of antitrust, economic fairness.
ated settlements (mostly structural relief; some behavioral/
conduct remedies) in a small fraction of deals with premerg- * * * * *
er filings (plus a few non-reported transactions); and (4) con- Animating the beliefs of ordinary Americans who demand
tested court cases (and/or FTC administrative cases), for a very vigorous antitrust enforcement are the value of fairness and
small percentage of challenged deals that are not settled.1 the belief that properly functioning competitive markets are
Private plaintiffs may have standing to pursue claims under themselves fair. To say it another way, competition is fair
because it gives a chance to the small business owner to suc-
Section 7 of the Clayton Act, but these claims are infrequent
ceed in her business venture, because it delivers lower prices
and rarely prevent deals from closing.
to consumers, and because it drives the innovation that
The articles in this theme are part of extensive ongoing
improves products, business processes, and more.
coverage of merger enforcement by ANTITRUST. This level
of attention is warranted both for analytical reasons that * * * * *
It is our job as public servants to explain to the public why
antitrust practitioners can appreciate (e.g., merger cases pres-
we do what we do; for example, when we use economics tools
ent unique challenges in both factual and economic analysis),
with obscure names like “Herfindahl-Hirschman Index” or
and because merger enforcement attracts broader public
“Gross Upward Pricing Pressure Index,” we are simply meas-
uring intuitive phenomena like the concentration of eco-
nomic power or the tendency of mergers to reduce compet-
Gregory G. Wrobel, Editorial Board Chair of ANTITRUST, is a shareholder and
itive pressures that keep prices down. . . . I believe strongly
head of the Antitrust Practice Group of Vedder Price P.C. All opinions
that in the last decade we have been reducing the gap
expressed herein are his alone and do not necessarily reflect those of his
between expert and popular antitrust as we have been liti-
firm or any of its clients.
gating more and more cases, forcing us to explain our claims
F A L L 2 0 1 6 · 5
E D I T O R ’ S N O T E
of harmed competition to lay judges and juries who must Ramirez
determine the rightness of our causes. Antitrust is too impor-
The Council of Economic Advisors, for example, cites
tant to be left solely in the hands of antitrust experts.
increases in corporate profits and revenue share of the 50
leading firms in various industries, as well [as] downward
Ramirez
trends in firm entry and exit rates to suggest there may be rea-
We are not in the business of picking winners or losers; our son for concern about the current state of competition. The
job is to enforce the rules that safeguard vigorous competi- Economistsimilarly identifies high profits, particularly in cer-
tion if we see them being broken. We prefer to leave markets tain sectors like technology and health care, as a basis for con-
alone, allowing customer preferences to dictate what will be cluding that the U.S. economy must be “too cozy for incum-
produced and sold, and competition to determine which bents,” while the Wall Street Journal attributes lessened
firms make what goods and at what price. Competition leads innovation and weak start-up activity to supposed market
to lower prices, higher quality, and innovation, all to the concentration.
benefit of consumers.
* * * * *
* * * * * But, in contrast to the granular assessment of individual
[O]ur role is by necessity a limited one. First and foremost, markets that we undertake when evaluating the competitive
we are law enforcers, not sector regulators. Our job is not to effects of increases in concentration, broad industry measures
transform markets; we must take them as they are. We also like those cited by the CEA, The Economist, and the Wall
Street Journaltell us little about market dynamics or the level
have no direct authority over prices. High prices unaccom-
of competition in a particular industry. The fact that there
panied by anticompetitive behavior do not violate the
may be fewer firms today in certain sectors than in years past
antitrust laws. Without more, neither do price increases
does not necessarily mean that these sectors are any less com-
resulting from inadequate supply or other natural market dis-
petitive from a consumer welfare perspective.
ruptions. We act only when the competitive process itself is
harmed or threatened, through anticompetitive combina- * * * * *
tions or conduct. Nor can we simply decry an increase in the presence of large
firms—or even dominant ones—merely because they are
Second, we intervene only when the facts warrant it. This
big or have a high market share, although deals and conduct
requires a deep analytical dive into reliable qualitative and
involving such firms are more likely to draw antitrust scruti-
quantitative evidence to understand the actual or likely com-
ny. In many cases, being big is a consequence of being bet-
petitive impact of the merger or conduct under scrutiny.
ter than rivals at offering customers what they want. We are
rightly hesitant to view success, and by extension size, with
Size and Concentration
automatic suspicion. Indeed, large firms can have scale
Hesse and Ramirez expressed similar views that growth of economies and other efficiencies that are beneficial for con-
large firms and economy-wide trends toward consolidation sumers. In short, one cannot assess the state of competition
are not proper targets for antitrust/merger enforcement. in the absence of a fact-intensive analysis of specific product
and service overlaps, the availability of substitutes, and other
Hesse relevant market dynamics.
The big-is-bad view takes aim, as I see it, at the wrong tar-
get for antitrust enforcers. First of all, many of the measures Consumer Welfare, Competitive Impact, and
of concentration have from an antitrust perspective the Presumption of Anticompetitive Effects
wrong measure of bigness in mind. Antitrust is concerned Hesse and Ramirez both reference the presumption of anti-
with a situation where a firm or firms are large enough in competitive effects for merged firms with a high market share
proportion to the rest of the market—and thus face too lit- in concentrated markets. Hesse goes a bit further in arguing
tle competition—that they can raise prices alone or take
that effects on competition and the competitive process,
actions that prevent new competition from undercutting
rather than impact on consumer welfare, are the guiding
high prices. Such firms, we say, have “market power.” Many
standard for enforcement action.
concentration studies simply do not measure market power
in this way.
Hesse
* * * * *
Second, even when we have the right measure of bigness in Just as some popular views of antitrust miss the mark some-
mind—that is, market power—market power by itself is not what, so do some of the expert views . . . Some commenta-
the focus of antitrust . . . . In other words, antitrust enforcers tors have accordingly suggested that the antitrust laws should
don’t go after firms that become large just because they are judge all practices by their impact on the welfare of down-
good at competing. So long as competitive processes are not stream consumers, as measured by price and output effects
subverted, new firms can rise to displace today’s winners. in downstream markets. But, although we believe competi-
That is how competition works. We are concerned with sit- tion maximizes consumer welfare, the ultimate standard by
uations where market power is achieved or protected by anti- which we judge practices is their effect on competition, not
competitive means. on consumer welfare.
6 · A N T I T R U S T
* * * * *
One bedrock tool for protecting against anticompetitive
mergers has been recognized by the Supreme Court for over
fifty years. In Philadelphia National Bank, decided in1963,
the Supreme Court announced that “a merger which pro-
duces a firm controlling an undue percentage share of the rel-
evant market, and results in a significant increase in the con-
centration of firms in that market is so inherently likely to
lessen competition substantially” that the law will presume
it unlawful.
* * * * *
That said, in the more routine horizontal merger case we
almost always do introduce proof of consumer harm where
it exists—along with demonstrating likely reductions in qual-
ity and slowing of innovation—because we want to present Stock
aply r faoucnltli ctahecsec topour entshtue mo ffip nttdhioeern a:o nfe tvfiaecncotm .w Mpheeotrirete iopvevr iecere,f f waecnet dsr aooruef ltycph uraetll lyee fnsfoegcleetd-s Photo: Super
cannot be quantified, we usually have some concrete evidence
such as documents or lay testimony showing that competi-
disputes. When cases are settled, the conversation hardly
tion between the merging firms is important and will be lost
leaves the corridors of agencies and law firms, and so it can
with a merger.
stay at the rarified level of economics tools such as HHIs,
cross-price elasticities, and GUPPIs. When we litigate, we put
Ramirez our dispute before a neutral lay arbiter—a judge or a jury.
That means we have to tell a compelling and coherent story
For us, of course, stopping anticompetitive combinations is
about why certain business practices are harming competi-
among the most important jobs we perform. And market
tion and thereby participants in the economy. The proof
shares and market structure continue to play an important
will be varied, and it will almost always include sophisticat-
role in merger analysis and enforcement, even as our focus
ed expert presentation of economics evidence—theoretical or
has shifted to more direct assessments of competitive effects.
empirical or both—as part of the evidence. But that must be
Where a proposed merger significantly increases concentra-
packaged with qualitative evidence that confirms in a palpa-
tion in an already highly concentrated market, we are justi-
ble and intuitive way the story told through the numbers of
fiably entitled to a presumption of competitive harm.
the expert. And ultimately the plaintiff’s story should high-
light the moral underpinnings of the antitrust laws—fight-
Trials and Settlements
ing against the unfairness of concentrated economic power
Hesse and Ramirez both emphasize litigation readiness as an
profiting at the expense of consumers, suppliers, or com-
effective tool to achieve enforcement goals. Hesse also argues petitors who could challenge the defendant’s dominance.
that public trials shift how cases are prepared and presented.
Hesse Ramirez
As a matter of process, the way that antitrust as expert prac- To those who think us too permissive, I note that the Com -
tice has become more engaged with the general public’s mission has challenged 44 mergers in the last two years alone,
enthusiasm for antitrust, and to make itself more relevant to including suing to stop eight transactions outright. Among
the public, is to change the way disputes are resolved. We other major wins, we successfully challenged the Sysco/US
have been moving from a quasi-regulatory system—in which Foods, Staples/Office Depot, and St. Luke’s/Saltzer mergers.
disputes are typically resolved by settlement crafted largely We have been particularly active in addressing what we
within the halls of the agencies—to a litigation mode— believe to be anticompetitive consolidation in the healthcare,
where disputes are more often resolved by lay third-party pharmaceutical, retail, and energy sectors, among others.
arbiters.
* * * * *
* * * * * . . . [M]ost often we are able to resolve the competition con-
Showing to the public that we are prepared to litigate has cerns we identify through consent orders requiring divesti-
paid off: in this administration, a total of 40 mergers have tures of overlapping products. Settlements offer the advan-
been blocked by court order or wholly abandoned by the tage of addressing the competitive harm of a transaction
merging companies in the face of our investigation, a stark while still allowing realization of the merger’s efficiencies.
increase from 16 in the prior administration. Despite their many advantages, however, our remedies have
also been the subject of criticism.
* * * * *
Litigating more means changing the way we talk about our * * * * *
F A L L 2 0 1 6 · 7
E D I T O R ’ S N O T E
Some contend that the FTC would rather accept an inade- market movements for public companies). This means that
quate remedy rather than litigate. Our recent track record, the cases are presented in court through preliminary injunc-
including our merger suits in Sysco/US Foods, Staples/Office tion proceedings or their functional equivalent, with highly
Depot, and Superior/Canexus, directly belie that contention. compressed discovery and expert work.
In each of these cases, the parties offered substantial divesti-
These dynamics may not produce the best factual records
tures to buyers ready to compete in the business, but we
for district court decisions, given the inherent complexities of
determined that the divestitures would not fully replicate the
expert analysis and the use of historical information to pre-
competition lost through the merger and appropriately
dict future market events. Decisions of the district courts
rejected them.
typically stand as the last word in merger cases due to time
pressures that the parties face but the agencies do not, which
The Way Forward may leave the agencies better positioned to exercise rights of
This publication is not usually a forum for high-level debate appeal if they lose in the district court.3
on antitrust policy, and certainly not on broader govern- Public commentary on antitrust and competition policy
ment policy toward large and growing firms across the full has been more visible recently than is typical for election
spectrum of regulation, taxation, equality in compensation, cycles. Ramirez notes that “[w]ith election day fast approach-
or other concerns. Rather, we focus on how antitrust practi- ing, we find ourselves in the midst of a public debate over
tioners, courts, and parties in cases grapple with issues (and the effectiveness of current competition policy in the United
merger deals) under existing law. States,” and both Hesse and The Economist invoke populist
The same is and should be true for agency merger enforce- sentiments of economic fairness, opportunities for small
ment. Substantive standards under Section 7 focus on com- businesses to compete, employment impact, and backlash
petition in the relevant market(s) directly affected by a merg- against “corporatism” (presumably an undesirable relation-
er, not broader economic or social consequences of the deal ship between large companies and government).4 These
or its effects on wider trends in the U.S. economy (or glob- themes seem to be resonating now across a range of policy
ally) in firm size, employment, wage levels, or myriad other issues that are much more pressing for voters than govern-
factors. ment merger enforcement. But the economic trends that
Enforcement agencies exercise discretion over what deals prompt these sentiments cannot be laid at the doorstep of
to investigate and challenge, but they do not possess (or exer- mergers, as many large firms have grown their core business-
cise, in the case of the FTC) authority to issue regulations es internally. Nor should these sentiments shape the legal
pronouncing new substantive antitrust standards to animate standards under Section 7 that courts now apply in merger
Section 7.That job is left to U.S. courts. It is noteworthy that cases, and that presumably guide enforcement decisions (and
Hesse prominently cited the Philadelphia National Bank agency enforcement guidelines).
Supreme Court decision dating back to 1963 for the pre- Hesse describes a deliberate shift from technical analysis of
sumed correlation between market concentration and com- consumer welfare leading to negotiated settlements, in favor
petitive harm. Courts can make new law under Section 7 of merger cases tried to district court judges, focused more
only when ruling on litigated merger cases, and the Supreme broadly on effects on competition and the competitive
Court and federal courts of appeals seldom receive (or accept) process. But her comments are balanced with the continuing
merger cases to review. need to delve into technical details of economic analysis,
Both Hesse and Ramirez note that litigation readiness matched with evidence from the merger parties and other
helps to achieve enforcement goals, and Hesse argues that the market participants.
increasing number of cases going to trial serves broader goals Merger cases are inherently forward-looking, predicting
in publicly communicating the moral underpinnings of likely competitive impacts that often require a range of ana-
antitrust law. More frequent litigation of merger cases may lytical tools and expert evidence that are grounded in vary-
produce fresh judicial guidance on substantive standards and ing ways in economic theory and methods. A shift to trials in
proof required to block mergers. The goal of merger enforce- court will not change the use of these tools or the complex-
ment, however, is not to create new case law, but rather to ity of the evidence they produce, as the economic theory
step in only where deals that emerge from the broth of glob- and models from which these tools derive are now deeply
al competition pose a direct threat to competition and con- embedded in antitrust standards.5
sumer welfare in particular relevant markets in which the Mechanisms already exist to promote greater public aware-
merger parties overlap. ness of merger cases that are not litigated. The agencies issue
Important traits of merger deals, by their nature, create statements that explain proposed settlements in merger cases
challenges that impede the evolution of case law under to aid in public comment before final action on the settle-
Section 7. For the most part, merger cases must be tried ment. Perhaps more can be done in individual cases (and
under the time pressures of the HSR review process and ter- periodically on a collective basis) to explain the technical
mination dates embedded in the parties’ agreements and analysis used in both litigated merger cases and settlements,
financing arrangements (in addition to the forces of stock and thereby bridge the divide noted by Hesse between
8 · A N T I T R U S T