- Historical review of Chinese and American merger policies and actions demonstrates the stark difference between the two.
- International mergers are not immune from a conflict of trade policy concerns invading the antitrust analysis and stiffer scrutiny in sectors considered strategic to a national economy.
Antitrust Law Journal
Consumers and Citizens: The Future of the Consumer Welfare Standard in Global Merger Review
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Global merger review is transforming. What for 40 years has been largely a technocratic enterprise employing a focused definition of competition is now more expansive—and less predictable. Merging parties must contend with the Chinese statute on competition policy, which explicitly marries antitrust law and industrial policy. Meanwhile, in the United States, antitrust orthodoxies are under fire from the left and the right. On the left, an influential wing of the Democratic Party seeks to revive and reshape the early populist origins of antitrust law, which embraced a set of policy goals beyond consumer welfare. Indeed, President Biden’s recent executive order on “Promoting Competition in the American Economy” may signal that these views are in the ascendant. On the right, the recent past presidential administration at times arguably deemphasized or dispensed with a technocratic approach to antitrust policy, and instead (in the view of some) used merger review to prioritize partisan interests divorced from competition law. These trends may signal the rise of a new era—an ambiguous era characterized by splintered factions and approaches, and one in which firms no longer can rely solely on old tools to predict the outcome of merger reviews.
In 2008, China implemented its inaugural antitrust regime with the enactment of its Anti-monopoly Law (AML). In the 12 years since, many U.S. critics and merging parties have argued that China’s antitrust law focuses on industrial and trade policies as integral elements of merger review. In contrast, U.S. merger review has been guided solely by a merger’s prospective competitive effects.
Such a binary view of U.S. and Chinese merger enforcement may be too simplistic today, if it ever was entirely accurate. Although the two nations retain distinct approaches to merger review, it is increasingly the case that neither applies the generally predictable and narrowly focused approach of maximizing consumer welfare that merging parties and their antitrust advisors have come to expect. Merging parties today face complex calculations that raise three questions. First, will enforcers review transactions on the basis of the consumer welfare standard, another competition standard, or a standard that is not concerned strictly with competitive effects at all? Second, will authorities apply the same standard to similar cases, or make ad hoc and arbitrary decisions? And third, how do these evolving standards shift strategic calculations in crafting a global merger defense? In this new world, is hiring the president’s personal lawyer just as critical a step as selecting an economist? Similarly, in order to close a deal, will it be just as important for parties to guarantee jobs in a particular U.S. state as promising to keep production in China?
In this article we do not take a normative position on which political, social, or economic conditions the antitrust laws should address. Instead, we take up the first two questions above by looking to a number of recent Chinese and U.S. merger reviews to assess what competition standard — or noncompetition standard — enforcers are applying today and likely will apply in the near future.
One important definitional point: throughout this piece, we refer to techno-cratic or consumer welfare-oriented antitrust as distinct from other approaches to competition law. By this we mean an antitrust approach that aims to protect, in the words of Herbert Hovenkamp, “actors who [are] injured by …a monopolistic output reduction.” That injury can be in the form of increased price or decreased quantity, quality, or innovation. And it is typically assessed using standardized tools that enforcers and scholars have developed over time—such as the Herfindahl-Hirschman Index, merger models, Upward Pricing Pressure calculus, and the like—and the search for other evidence of actual or likely competitive effects. Indeed, under existing law, this consumer welfare standard encompasses injuries to economic actors that are not “end consumers” in the sense of retail purchasers of finished products. For example, there are numerous historical enforcement actions involving intermediate product markets where the buyers and sellers are businesses, some of which are discussed below. There are also many examples of enforcement actions relating to “buyer power” in labor, agricultural, health care, and other markets. This is the baseline that has remained relatively stable in the United States since the early 1980s, albeit with some meaningful deviations in interpretation between Democratic and Republican administrations.
Chinese enforcers, by contrast, are required by law to consider a more expansive set of considerations than the consumer welfare competition standard. The AML explicitly requires that regulators consider the needs of the development of a “healthy …socialist market economy.” In other words, the statute’s purpose appears to embrace objectives such as maintaining employment and raising standards of living while strengthening a “socialist market economy” capable of competing globally with rivals (including the United States) and providing support to serve China’s strategic and economic interests. As we demonstrate through several case studies below, Chinese regulators appear to have applied this law faithfully.
In the United States, unlike in China, there has been (as of now) no significant statutory change to the antitrust laws for decades. Nonetheless, the consumer welfare standard may be eroding for three principal reasons. First, the former presidential administration at times was perceived, accurately or not, as using merger policy as a tool to pick winners and losers based on the personal preferences of the president and other powerful individuals. Second, a significant number of both Democrats and Republicans are pushing for enforcers and judges to consider a wider range of policy objectives when making merger review decisions. And third, the increasing political salience of antitrust has led less technocratic actors, such as publicly elected state attorneys general, to take a more active approach to antitrust enforcement that can supplement (or possibly conflict with) enforcement decisions at the federal level.
These recent changes are more dramatic than the comparatively routine and predictable policy switches from administration to administration that we have seen in recent decades. Moving between Republican and Democratic administrations has, as we document in several case studies below, often led to noticeable changes in merger policy. That these changes have happened when both parties supported and applied a notionally identical competition standard suggests that with less consensus in the future about the proper standard, we may see more radical swings in the outcome of the merger review process and the enforcement of the antitrust laws more generally.
Our review of specific historical examples allows us to construct a positive analysis to answer the third question that we pose above: how can merging parties identify the industry sectors, deal conditions, and potential for enforcement remedies that create an elevated risk that non-consumer welfare approaches will be applied to merger review? And relatedly, how should they protect themselves from the strategic risks of this enforcement landscape? To answer these questions, we identify a number of ways that parties can and do control for such risks in their purchase agreements.
The article proceeds in three sections. In Part I, we describe the AML and analyze trends in Chinese merger review over the past decade. In Part II, we similarly explore trends in merger review in the United States and briefly discuss proposed statutory and regulatory changes that would increase the policy scope of merger review. In Part III, we describe strategies used in purchase agreements to mitigate, or at least to allocate more efficiently, the risks we identify in Parts I and II.
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This article was written before Mr. Bloomfield’s clerkship and represents only his personal views. The authors would like to express their thanks to David Toscano, Dmitriy Molchanov, Sybil Sam, and Chan Tov McNamarah for their valuable assistance with and comments on earlier versions of this article, as well as to Rosie Lipscomb, the Antitrust Law Journal Symposium Co-Editor (with Jesse Solomon) for her support in the development of this article. The authors wish to disclose that this article references various transactions and investigations over the past decade in which one or more authors, or their law firm, provided advice to a party or a third party, including Comcast/NBCUniversal, GE/Electrolux, and ASE/SPIL, as well as companies identified in the House Judiciary Committee report cited infra note 133 et seq. In all instances, the authors have relied solely upon the public record in referencing these precedents.