The allure of the structural presumption is easy to appreciate. The prediction of a merger’s anticompetitive effects is a costly, time-consuming, complex, and uncertain undertaking. Antitrust enforcement agencies, particularly early in the investigation of large numbers of proposed mergers, would like to be able to use proxies, screens, and other shortcuts to provide a provisional indication of which mergers are likely to be anticompetitive and thus warrant further scrutiny. Courts likewise stand to benefit from simplification, even after completion of a full trial, given the aforementioned difficulties, judges’ lack of expertise, and the absence of independent analytical resources.
Unfortunately, although these sensible objectives might seem to be advanced through the use of a structural presumption, they cannot be achieved in practice because, upon analysis, the contemplated methodology does not work in principle. This article explains how the structural presumption is fundamentally flawed because of its own internal illogic, its sharp conflict with the economic analysis of anticompetitive effects, and the unintelligibility of its associated legal framework. The structural presumption’s failure even as a preliminary screening device a fortiori renders it unsound as a basis for actual decision-making. It is therefore necessary to replace the structural presumption—and dangerous to extend and enshrine it as currently proposed.
Part I examines the structural presumption’s internal logic, emphasizing its fatal reliance on market definition. This dependence is lethal both because of market definition’s incoherence and because the very need for market definition contradicts the central point of the presumption. To explain the latter, the presumption is triggered when concentration (market share) measures are sufficiently high. Courts and agencies have long required, however, that such concentration be assessed only in a so-called relevant market, which is one that is chosen after completion of the market definition process. But how is one to choose the best market definition? In principle and to a significant degree in practice, this choice is made based on evidence that helps to predict anticompetitive effects. Hence, we have come full circle. The judge assesses a battle of experts and other evidence relating to anticompetitive effects in order to define the market, in order to measure concentration, in order to see if the structural presumption is triggered, in order that we can then presume anticompetitive effects without actually having to consider them. That the structural presumption is patently illogical at its core is largely ignored.
Part I further demonstrates that matters are worse for reasons related to deep flaws in the market definition process, however well one attempts to undertake it. (This is so unless one renders the matter moot via complete reverse engineering: that is, choosing the market definition that ratifies an outcome determined entirely on other grounds.) Market definition throws away information, redefined markets are useless for analysis, and market shares cannot coherently be interpreted in the manner that Supreme Court cases demand and merger assessments purport to do. An immediate corollary is that, when information is particularly scarce—such as when a competition agency screens merger filings to identify those deserving further scrutiny—market definition and the structural presumption are counterproductive. One can ill afford to discard information when it is especially meager to begin with, and there is no force capable of suspending the laws of logic when a decision maker would find it convenient to do so.
Part II relates the structural presumption to decades of economics research on the prediction of mergers’ likely anticompetitive effects. Because the presumption relies on concentration measures, the focus of this Part’s analysis is on when and how they—or other market share information—may illuminate the analysis. In light of the aforementioned defects with market definition, one must proceed carefully. As it happens, certain market share information is sometimes relevant if the shares are in “narrow” markets that align with particular economic models, regardless of whether such markets would be “relevant” under existing protocols.
The possible use of concentration or market share information is considered with respect to the standard types of anticompetitive effects from horizontal mergers: unilateral effects with homogeneous goods, unilateral effects with differentiated products, and coordinated effects. Three key lessons emerge. First, the correct method of analysis—and thus the relevance, if any, of information on market shares—differs greatly across these settings. Hence, the one-size-fits-all structural presumption—and closely related methods in merger guidelines in the United States, European Union, and elsewhere—is a nonstarter. Second, even when market shares in a particular model are relevant, other factors (notably, the elasticity of demand) are also relevant and quite important, so market share information alone—which is all the structural presumption considers—cannot give even an approximate indication of anticompetitive effects in any setting. Third, the concentration or market share information, if any, that matters in various models in the different settings generally does not correspond to the presumption’s focus on the level of and change in concentration, such as may be measured by the Herfindahl-Hirschman Index (HHI) and the change in that index (DHHI), respectively. The concentration level is mostly not probative at all. The change in concentration is useful in only the most basic model in a single setting, and even there the market shares of the two merging firms should be used in ways that differ from the DHHI.
Part II closes by reflecting on the implausibility of the familiar hypothetical monopolist test (HMT) that is featured in modern merger guidelines, most obviously because barely any cases involve mergers to monopoly. Moreover, even mergers to monopoly (or those that might be similar to a merger to monopoly, such as by enabling coordinated price increases) are improperly evaluated: the HMT throws away the correct assessment and replaces it with substantially unrelated measures. Also considered is the bearing of various strands in the economics literature on merger assessment, including that on the demise of the structure-conduct-performance paradigm. Finally noted is the policy relevance of the level of market power—in contrast to how much a proposed merger would increase market power, which is the traditional focus of legal and economic analysis of horizontal mergers.
Part III addresses the law. It begins by unpacking the burden-shifting framework commonly employed in cases involving the structural presumption. Under it, the party challenging a horizontal merger must first prove its prima facie case to trigger the presumption, after which (if successful) the merging parties bear a burden of rebuttal, which, if met, shifts the burden back to the challenger. Court opinions and other sources state each of these basic elements in multiple, differing, and often contradictory ways. Surprisingly, some are internally inconsistent and may contradict the very authorities (often within-circuit controlling precedents) cited for the stated propositions.
Some of the more important quandaries are then explored. First, there is some question whether the structural presumption is optional (as typically imagined) or mandatory—meaning that the government loses if the presumption is not triggered, even if likely anticompetitive effects can be demonstrated. Second, the strength of the presumption, when triggered, is obscure, which makes it hard to understand what in principle constitutes sufficient rebuttal. Third, the presumption’s shifting production burdens are bizarre when one considers that these shifts are announced only in a trial judge’s opinion after a complete trial and, moreover, that the judge is the factfinder. (Formally, the only legal consequence of failing to meet a production burden— rather than the higher persuasion burden—is that the judge is to take the decision from the factfinder, herself, and instead decide the matter herself.) Fourth, persuasion burdens seem to matter greatly even though as a formal legal matter they should not under the preponderance rule.
Part IV examines proposals in a recent U.S. House Majority Staff Report on Big Tech and in a Senate bill that would legislate a version of the structural presumption and extend similar presumptions to other antitrust domains. It explains how the core critiques advanced in this article are applicable, which undermines such efforts. To be clear, no position is taken on the accuracy of the Report’s analysis of Big Tech or the wisdom of these calls for greater antitrust scrutiny. Instead the point is that any prescriptions for reform should be sound responses to identified problems rather than invocations of superficially appealing formulations that are misleading and misdirected.
On reflection and analysis, we can see that the structural presumption cannot mean what it proclaims in a number of respects, is internally incoherent, entails counterproductive use of market definition, conflicts in multiple ways with the teachings of economic analysis, and does not provide a useful legal framework. Part V concludes this article by considering its long overdue replacement. A first step is abandonment of the structural presumption. Instead, one should employ the proper methods of analysis elaborated in Part II directly rather than using them as mere inputs into the market definition component of the structural presumption’s malfunctioning machinery. For example, when there is an applicable formula, it should be used as best one can. Agencies and courts should not instead do all the analysis necessary and then discard some of its inputs and misuse others to define a market, from which to make less reliable inferences from market shares therein. An important caveat to this article’s critique, which is suggested variously throughout the article, is that competition agencies and even trial courts may be much less influenced by the structural presumption’s dictates than meets the eye. Even so, clear thinking, accurate decision-making, transparency and accountability, and the development of law and policy are all advanced by removing obfuscation.
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