Academic journal article Economic Inquiry

Some Empirical Evidence on the Effectiveness of Antimerger Relief in the United States

Academic journal article Economic Inquiry

Some Empirical Evidence on the Effectiveness of Antimerger Relief in the United States

Article excerpt


Section 7 of the Clayton Act of 1914 made it illegal for two competitors to merge if such a merger would result in a significant restriction of competition. In 1950, the Celler-Kefauver amendment closed a significant loophole in the existing antimerger legislation by outlawing anticompetitive acquisitions of assets as well as acquisitions of stock. The law empowering the antitrust authorities to challenge anticompetitive mergers has been the same for over half a century now, although its interpretation has evolved over the years as the government and the courts gained experience from handling various cases.

Identifying the problem cases out of numerous mergers taking place each year eventually became a standardized process, as the Department of Justice (DOJ) issued its first Horizontal Merger Guidelines in 1968. These guidelines specified thresholds of market concentration that when exceeded, would likely trigger a more extensive investigation of a merger. As economic theory became more dominant in the analysis of antitrust cases, the Merger Guidelines were revised several times--in 1982, 1984, 1992, 1994, and 1997--adding emphasis to such important factors as barriers to entry, efficiencies, and likelihood of collusion among competitors. (1)

While the legal treatment of mergers improved steadily throughout the existence of antimerger enforcement, the remedies, or "fixes," carried out under Section 7 were often ignored. Many researchers have pointed out that frequently the focus of merger investigations was on establishing the anticompetitive potential of the transaction. When such was found, the government can do no better than disallow the merger entirely. However, if there are substantial efficiencies foregone by prohibiting all (arguably) anticompetitive mergers, then such policy begs for improvement. Also, until the passage of the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, the merger investigation typically did not commence until after the merger was consummated. Therefore, disallowing the transaction really meant dissolving the already-combined entities. This by itself can easily be seen to be problematic.

Resolving an anticompetitive situation arising out of a proposed merger became easier once the HSR Act gave the government the power to delay the merger while the investigation proceeds. Thus, dissolving potentially troublesome mergers after they have been consummated is usually no longer necessary. However, antimerger remedies only recently became the focal point of improvement of antimerger policy. Studies of merger challenges of the 1950s and 1960s (Elzinga 1969; Plunder et al. 1972) and 1970s (Rogowsky 1982) found that the relief obtained by the government is unsuccessful in a great majority of cases. The problems identified plagued both the instruments of relief used by the antitrust agencies (partial divestitures, reliance on marketing or conduct orders, bans on further acquisitions, etc.) and the enforcement of consent orders. In other words, remedies were often poorly designed in the first place and hence doomed for failure; additionally, sometimes even a well-structured solution would prove unsuccessful because its execution was not properly monitored.

In recent decades, antimerger remedies have increasingly consisted of asset divestitures. However, as is evident from numerous cases reviewed by Elzinga and Rogowsky, as recently as in the 1980s relief obtained by the antitrust authorities in many cases was limited by the insistence of the agencies on relying on nondivestiture instruments, such as marketing orders, which simply prohibit certain types of conduct. Nevertheless, today divestiture of overlap assets is the preferred method of relief sought by the Federal Trade Commission (FTC) and the DOJ.


It is worth pointing out that it is not the goal of this article to evaluate the U.S. merger policy as a whole or to make policy recommendations regarding such aspects of it as legislation, interpretation of the law, dual-agency enforcement, or case selection process. …

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