Merger law,policy, and enforcement guidelines in Canada

The paper describes Canada's merger law, policy, and enforcement activity. The contents of Canada's recently issuedMerger Enforcement Guidelines are explained, analyzed, and compared to the U.S. Merger Guidelines. The roles of concentration, market share, entry conditions, and efficiency defenses in Canadian merger cases are assessed. Reference is made to some recent decisions of Canada's Competition Tribunal, a body created as a part of the major competition policy reforms contained in the 1986 Competition Act.     

Applying “Merger Guidelines” market definition to (de)regulatory policy: Pros and cons

Since initially presented in the 1982 Department of Justice Horizontal Merger Guidelines, market definition has been adopted nearly worldwide as a framework to see if a merger would substantially lessen competition. This framework is useful for addressing the similarly counterfactual question of whether forbearance from regulation would lead to an increase in prices. In this context, however, the usefulness of a merger-based market definition is limited. Because the alternative to forbearance is regulation, and since some regulated rates may be below competitive levels, finding that deregulation would lead to market power as defined for mergers need not justify continued regulation. Forbearance in telecommunications highlights market definition questions regarding gross vs. marginal substitutes, dynamic efficiencies, and service bundling. It also reveals ambiguities in the meaning of “geographic market.” Market definition also has limited applicability if regulation exists not to prevent high prices but the abuse of dominance through predatory pricing.     

The Horizontal Merger Guidelines of 1992

The 1992 Horizontal Merger Guidelines of the Department of Justice and the Federal Trade Commission outline an enforcement policy which makes a long overdue break with its predecessors in awarding no decisive or predominant role to market concentration as a criterion of anticompetitive effect. However, the new policy does not provide an adequate substitute criterion: the tests that it prescribes for screening merger proposals are so specified that a potentially large proportion of anticompetitive mergers can escape challenge without showing any promise of improving efficiency. The time is ripe for a comprehensive inquiry aimed at formulating a more satisfactory policy.     

The 1992 Horizontal Merger Guidelines: A brief critique

The 1992 Horizontal Merger Guidelines of the United States Department of Justice and the Federal Trade Commission represent an improvement over previous horizontal merger guidelines in certain respects especially in the treatment of entry. However, the 1992 Guidelines continue to suffer from problems with market definition methodology. Also, the softening of HHI presumptions and burdens and the incorporation of an increased competitive effects section seem to reduce the effectiveness of the Guidelines.The views expressed in this article are solely those of the authors and not of any state or federal agency.     

Brown Shoe Versus the Horizontal Merger Guidelines

The new Horizontal Merger Guidelines, if treated by courts as a source of law, would reduce the discretion that is traditionally exercised by courts in defining relevant markets and market power in merger cases. This is an undesirable shift in the balance of power because courts have used the market power inquiry stage of merger analysis as a general checkpoint or weigh station for evaluating factors relevant to the welfare effects of a merger.     

Reliable guidelines? A European comment

Merger guidelines mean to reduce the uncertainty related to the possible anti-competitive impact of mergers/takeovers by businesses undertaking them. It is doubtful, according to the author, whether the Revised Merger Guidelines of two US Antitrust Authorities achieve that goal. They would seem to be too ‘theoretical’ in the face of inevitably unique merger events; moreover, the theory in the Guidelines has some important weaknesses and limitations. From an EC competition policy point of view, an efficiency trade-off for a dominant-firm merger is considered dubious procedure.     

Electricity Merger Analysis: Market Screens, Market Definition, and Other Lemmings

Much discussion and effort have been devoted to the use of market power screens to detect market power that might arise from existing generation asset portfolios or utility acquisition of new generation assets. The quest is to find the “Holy Grail”: a market power detection mechanism that minimizes the costs to all parties involved while finding the majority of market power exercises. This article contends that market power screens should be utilized with caution in policy and litigation applications because while they meet the criteria of minimizing enforcement costs, they are often unable to detect many types of market power exercises that an electric utility might undertake. The article begins with a discussion of the polestar for all screens—the Department of Justice/Federal Trade Commission Horizontal Merger Guidelines—and its limitations. Next, the article examines the accidentally correct, absolutely incorrect, and other outcomes that arise from the application of screens using FERC’s merger policy statement, “contestable load” analysis, and other examples. The Article concludes by noting that many types of market power exercises are undetectable with market power screens, and that better approaches would increase the probability of detection, given the low level of penalty current imposed upon those that wield market power.     

Analytical Screens for Electricity Mergers

Electricity mergers pose distinct challenges for competition policy. Electricity demand is highly inelastic in the short run, storage is limited, and transmission constraints limit the ability to substitute generation at other locations. As a result, a merger can affect prices in many different markets and even generators with small market shares may be able to exercise market power. The U.S. Federal Energy Regulatory Commission’s approach for screening horizontal mergers, based on the concentration thresholds in the Department of Justice/Federal Trade Commission Horizontal Merger Guidelines, can fail to identify mergers that lessen competition, and mergers that fail the FERC screen may have no significant anticompetitive effect. We propose competitive residual demand (CRD) analysis, which examines the supply curves of the markets affected by a merger and considers the ability and incentive of firms to raise prices before and after a proposed merger. CRD analysis is a relatively easy way to address the incentives for generators to exercise market power and relies on data that are often available. Vertical (convergent) mergers between electricity and gas raise additional concerns, and we propose a methodology to screen vertical mergers.     

Geographic Market Definition in the Merger Guidelines: A Retrospective Analysis

Since the initial Merger Guidelines in 1968, the Department of Justice and Federal Trade Commission have revised their merger enforcement screen over the course of six versions. This article examines the evolution of the geographic market component of the Guidelines and the economic implications of changing standards of market delineation on merger enforcement. Using an illustration from the beer industry, we chronicle the development of geographic market definition and its varying effects on merger enforcement over the past 50 years.     

The 1984 justice department guidelines toward horizontal mergers

This paper examines the treatment of economic efficiency in the 1984 revision of the Department of Justice's antitrust Merger Guidelines. An overview of the evolution of the guidelines toward horizontal mergers is presented emphasizing three key areas where changes have occurred. A model is developed following O. Williamson framework is extended to link changes in market concentration (as measured by the Herfindahl-Hirschman Index) that result from a horizontal merger to changes in market power (as measured by price-cost margins). Finally, the cost reductions (economies) required to offset increases in market power are developed in a simulation model. The paper concludes with an application of the model to the LTV-Republic Steel merger.     

Merger Guidelines and the Limits of Our Understanding

The merger guidelines have evolved from a structural standard for determining the legality of mergers to an open-ended evaluation that attempts to predict whether some specific harm to competition is likely. These efforts have been unsuccessful; moreover, mergers generally contribute no positive economic gain. Blocking mergers that may have little or no adverse effect on competition will not cause significant economic harm; but the failure to interdict mergers that do cause harm imposes significant costs on the economy. Merger enforcement policy should return to the structural method of the 1968 Guidelines as well as impose stricter structural standards.     

The Efficiencies Defense in the 2010 Horizontal Merger Guidelines

We analyze the efficiencies defense that is contained in the 2010 Merger Guidelines, which provides the most current statement of the Agencies?? enforcement philosophy and procedure. Most of our attention centers on efficiencies in production, but we also address merger-specific efficiencies that may lead to improved product quality, enhanced services, or even to the introduction of entirely new products. We begin with the analytically clean case of merger-specific efficiencies that are accompanied by monopoly power. From the perspective of either consumer welfare or social welfare, this presents the welfare analysis that should guide merger policy. We, then, examine the errors that may arise due to the restricted role that efficiencies play in Section 7 enforcement. Finally, we close with some policy recommendations.     

Threshold tests for the control of mergers: The Australian experience

Merger policy in Australia has been formulated for a small open economy. Tight merger control has been avoided in order not to impede rationalisation and improved international competitiveness. From 1977 to early 1993 a merger or acquisition was only prohibited if it would lead to a firm gaining a dominant position in a substantial market. As a result, few mergers were stopped and some which would probably have substantially lessened competition were allowed to proceed without detailed investigation. Since January 1993 a threshold test of substantial lessening of competition has applied — a reversion to the test included in the original 1974 Trade Practices Act. This is likely to mean that more proposed mergers will come under scrutiny and the trade-offs between efficiency gains and anti-competitive detriments will need to be evaluated in a greater number of individual cases. New draft merger guidelines released in November 1992 generally reflect contemporary thinking in industrial economics.     

The Sound of One Hand Clapping: The 2010 Merger Guidelines and the Challenge of Judicial Adoption

There is ample justification for the consensus view that the Horizontal Merger Guidelines have proven one of antitrust law??s great successes in the grounding of antitrust doctrine within economic learning. The foundation of the Guidelines?? success has been its widespread adoption by federal courts, which have embraced its rigorous underlying economic logic and analytical approach to merger analysis under the Clayton Act. While some have suggested that the Guidelines?? most recent iteration might jeopardize this record of judicial adoption by downplaying the role of market definition and updating its unilateral effects analysis, we believe that these updates are generally beneficial and include long-overdue shifts away from antiquated structural presumptions in favor of analyzing competitive effects directly where possible. However, this article explores a different reason to be concerned that the 2010 Guidelines may not enjoy widespread judicial adoption: the 2010 Guidelines asymmetrically update economic insights underlying merger analysis. While the 2010 Guidelines?? updated economic thinking on market definition and unilateral effects will likely render the prima facie burden facing plaintiffs easier to satisfy in merger analysis moving forward, and thus have significant practical impact, the Guidelines do not correspondingly update efficiencies analysis, leaving it largely as it first appeared 13 years earlier. We discuss two well-qualified candidates for ??economic updates?? of efficiencies analysis under the Guidelines: (1) out-of-market efficiencies and (2) fixed-cost savings. We conclude with some thoughts about the implications of the asymmetric updates for judicial adoption of the 2010 Guidelines.     

Efficiencies,market power and horizontal merger

In June 1982 the Justice Department issued itsMerger Guidelines which specify in terms of the Herfindahl index (H) what combinations of merger size and post-merger H are likely to lead to a merger challenge. This paper assesses theseGuidelines using Williamson's (1968) well-known model in which an optimal merger policy is viewed as one that considers both the price and cost consequences of merger. The Williamson model is recast in terms of H and changes in H and linked to theGuidelines. This allows an assessment of the welfare congequences of an industry merger for any given level of concentration and merger-produce changes in concentration. Among the conclusions are that, consistent with theGuidelines, higher values of H make socially successful mergers less likely, and a more appropriate, if perhaps not more feasible, focus for theGuidelines are coordination adjusted measures of concentration and merger size.     

The Supreme Court and Beer Mergers: From <Emphasis Type="Italic">Pabst/Blatz</Emphasis> to the DOJ–FTC Merger Guidelines

The beer industry in the U.S. has undergone significant structural change in the post-WWII period. The industry also was the object of prominent antitrust challenges to horizontal mergers proposed during this time frame. This paper documents the trend of increasing seller concentration in the brewing industry and assesses the role that mergers played in this structural transformation. We also analyze the change in merger policy that has taken place since the Supreme Court originally addressed mergers in the beer industry as compared to current antitrust enforcement under the DOJ–FTC Merger Guidelines and recent judicial decisions.     

Harm to Competition Under the 2010 Horizontal Merger Guidelines

In August, 2010, the Antitrust Division and the Federal Trade Commission issued new Guidelines for assessing horizontal mergers under the antitrust laws. These Guidelines were long awaited not merely because of the lengthy interval between them and previous Guidelines but also because enforcement policy had drifted far from the standards articulated in the previous Guidelines. The 2010 Guidelines are distinctive manly for two things. One is briefer and less detailed treatment of market delineation. The other is an expanded set of theories of harm that justify preventing mergers or reversing mergers that have already occurred. The 2010 Guidelines reflect a growing belief that in markets where product differentiation is minimal competition tends to be robust and the structural presumptions stated in previous Guidelines were too harsh. By contrast, where product differentiation is substantial the Guidelines?? approach tended to define markets too broadly, overlooking significantly anticompetitive possibilities. Under the 2010 Guidelines unilateral effects analysis relevant markets can be very small, often limited to three or four firms, and excluding some obvious substitutes. Markets in merger analysis are not defined for their own sake, however, but rather to ascertain whether a particular alteration in market structure covered by the merger provisions will be likely to facilitate a price increase. The 2010 Guidelines address four substantive merger concerns: exclusion, restraints on innovation, unilateral effects, and coordinated effects. The Guidelines have a separate section on mergers limiting ??innovation and product variety,?? treated mainly in the category of unilateral effects. The 2010 Guidelines are more flexible than previous Guidelines and also more catholic about the types of harms that mergers might cause and the techniques that can be used to assess them. Older Guidelines were excessively wed to methodologies that were at the forefront of applied merger analysis when they were drafted, but that tended to make the Guidelines obsolete as new methodologies became available. Not only do methodologies change, they are also specific to the situation. Further, they tend to be well developed in the literature and accessible to experts consulted by those defending a merger as well as to the government economists who employ them. To be sure, there is a tradeoff between flexibility and guidance. Often we can have more of one only by giving up some of the other, and that tradeoff is clearly present in the 2010 Guidelines.     

U.S. merger policy and the 1992 Merger Guidelines

This article reviews the empirical evidence regarding the effects of mergers on corporate efficiency. In light of this evidence it then evaluates the effectiveness of U.S. merger policy as articulated in the 1992 Guidelines of the Department of Justice. It argues that the 1992 Guidelines and the U.S. Government's policies toward business more generally over the past 12 years have been characterized by a bias for bigness. It concludes that this bias will only be eliminated when government authorities in charge of merger policy recognize that many mergers lower economic efficiency and design and enforce their policies accordingly.     

Donald Turner’s Merger Guidelines as an Antitrust Watershed

The idea of agency-issued guidelines as an effective enforcement tool was novel indeed when Professor Donald F. Turner unveiled it as a priority upon being nominated to be head the Justice Department’s Antitrust Division in 1965. This chapter reviews how Turner and we who were on his team worked to create the Merger Guidelines that were issued on his last day in office in May 1968. It also discusses how Turner’s novel merger guidelines idea has since been widely used in United States and globally.     

Quantitative Methods for Evaluating the Unilateral Effects of Mergers

We describe the quantitative modeling techniques that are used in horizontal merger review for the evaluation of unilateral effects, and discuss how the 2010 Horizontal Merger Guidelines helped legitimize these methods and motivate scholarly research. We cover markets that feature differentiated products pricing, auctions and negotiations, and homogeneous products, in turn. We also develop connections between quantitative modeling and market concentration screens that are based on the Herfindahl-Hirschman Index (HHI).