Blame for this asserted failure of antitrust policy to protect competition from anticompetitive mergers is assigned both to the enforcers themselves—who are argued to have allowed enforcement levels to decline and enforcement actions to become less effective—as well as the courts. This narrative’s proponents point to what they view as increased judicial antipathy toward antitrust, which is often attributed to the undue influence of the Chicago School of antitrust analysis on judicial appointments, on judges’ approach to antitrust cases, and on the legal doctrines that emerge from judicial decisions. Sometimes proponents simply assert this narrative is obvious. Sometimes the argument is accompanied by selected data, or examples of cases that proponents of the narrative believe should have been brought or should have been won.
With respect to mergers, where numerous sources of reliable data are available, most of the “lax enforcement” narrative’s empirical propositions are testable. If the narrative were broadly correct, we would expect to see—and indeed, reform advocates have asserted—most or all of the following: declining levels of merger enforcement activity by the Federal Trade Commission and the Department of Justice (the “Agencies”); a trend toward risk-aversion and less aggressive cases being pursued; declining Agency success in litigated cases; evidence that political appointments have adversely affected Agency output and success in court; and a trend in the courts toward anti-antitrust doctrines.
On each of these points, our research, and the recent work of others we discuss below, found that the evidence does not support the narrative that the Agencies and the courts have gone soft on merger enforcement. Instead, the evidence is that:
- The quantity of U.S. merger enforcement activity has increased, not declined.
- There is no statistically significant support for the hypothesis that Agency merger enforcement output varies depending on whether a Republican or Democratic administration is in place.
- Merger enforcement activity is positively affected by the size of the Agencies’ budgets, suggesting that if increased merger enforcement is a desired policy goal, increasing the Agencies’ budgets is a viable way to do this.
- The Agencies have won litigated merger cases more often over time, not less.
- Judicial outcomes in litigated merger cases have not varied depending on whether judges were appointed by Republican or Democratic presidents.
- There is evidence that, rather than hostile courts driving the Agencies toward risk-aversion, Agency-driven policies have led to pro-enforcement changes in judicial doctrine.
While some of these findings may come as a surprise, it is important to note that they are based on comprehensive analyses of verifiable data on merger enforcement and litigated merger challenges. These observations are not offered in support of any particular policy viewpoint, nor in unqualified defense of the status quo. But we believe they should help inform the current debate surrounding antitrust reform, especially in the merger area. Antitrust reform may be justified in some areas. But if a policy argument emerges from our work, it is this: any proposed reforms should be considered on the basis of sound analysis of reliable information, rather than on ideology or unsupported assumptions. The remainder of this article summarizes our findings on these issues.
The quantity of merger enforcement output has increased, not declined.
We begin with a simple question: what has happened over time to the quantity of U.S. merger enforcement output? In a study published in 2021, one of us examined data drawn from the Agencies’ annual reports filed under the Hart-Scott-Rodino Act, covering nearly a forty year period (1979-2017) (the “Merger Enforcement Intensity” study). The data revealed that over this period—a timeframe that approximately corresponds to the period when the Chicago School influenced antitrust analysis -- and controlling for the number of HSR mergers reported, the likelihood of a given merger being challenged not only did not decline, but more than doubled. After remaining relatively constant over the Reagan, G.H.W. Bush and Clinton administrations, the ratio of mergers reported under the HSR Act that were subjected to enforcement action (“merger enforcement intensity,” or “MEI”) rose in the G.W. Bush and, even more so, in the Obama administrations. As detailed in the Merger Intensity study, our methodology was generally consistent with that of other studies that have examined this issue, including our definitions of both numerators (what constitutes a merger enforcement action) and denominators (the set of transactions reported and subject to challenge under the HSR Act), although, unlike other studies, we applied this methodology to essentially the entire post-HSR time period. Contrary to the “lax enforcement” narrative, the data show that Agencies have grown more likely over time to challenge mergers, not less.
Merger enforcement intensity has been relatively constant across Republican and Democratic administrations.
The Merger Enforcement Intensity (“MEI”) study also measured the impact of political appointments at the Agencies on enforcement output. Applying a methodology similar to other studies that have examined enforcement over successive administrations (e.g., applying a one-year time lag to account for a new administration to put its antitrust leadership team in place), and applying that methodology across the broad timeframe encompassed by our study, we found that the MEI—the ratio of enforcement actions to reported mergers that are subject to challenge—remained relatively constant across the Reagan (MEI of 1.3), G.H.W. Bush (1.5), and Clinton (1.4) administrations, before increasing significantly during the G.W. Bush (2.2) and Obama (2.6) administrations. In contrast to a narrative that would attribute significant swings in enforcement to the political party in power, the data reveal no such pattern.
Agency budget levels have a positive and statistically significant effect on enforcement intensity.
The Merger Enforcement Intensity study revealed, but did not purport to explain the reasons for, the Agencies’ increasing propensity over time to challenge reported mergers. But the study did offer some limited insights on this question. In particular, we considered the potential for the levels of Agency budgets to affect enforcement output. We reported estimation results that the Agencies’ inflation-adjusted annual budgets were a positive and statistically significant determinant of merger enforcement intensity, indicating that observed increases in enforcement over time have been driven, at least in part, by Agency budgets. The estimates indicated that an increase in Agency budgets would yield an increase both in the number of merger challenges and in MEI. This suggests that budgetary action could promote a policy goal of increased merger enforcement activity, wholly apart from any change in enforcement policy or legal standards.
Judicial outcomes in litigated merger challenges have shifted in favor of enforcement.
As noted above, an element of the “lax merger enforcement” narrative argues that judicial treatment of litigated merger cases has made it increasingly difficult for the Agencies to prevail in court, due in large part to the Chicago School’s impact on judicial appointments, judges’ attitudes, and judicial outcomes and doctrine. Reform proponents support this argument with examples of cases they believe should have been decided differently, by qualitatively assessing how courts treat specific issues such as the structural presumption, or by examining outcomes in particular timeframes or types of cases.
In a 2021 working paper written with Professors Jeffrey Macher and David Sappington (the “Judicial Standards” paper), we developed a theoretical framework and undertook a comprehensive empirical investigation of all reported mergers, challenges, and litigated outcomes between 1979 and 2021, to test for the presence of shifting judicial standards since the implementation of the HSR Act—a broad timeframe that approximately corresponds to the period when antitrust enforcement was assertedly being undermined by the Chicago School’s influence. Contrary to the “lax enforcement” narrative, we found that judicial standards became increasingly pro-enforcement during the past four decades. The probability that the Agencies win the merger challenges they bring to court has increased over time, a result we found to be of moderate statistical significance. The probability that merger challenges proceeded to trial, rather than being settled or the deal abandoned, declined over time, a result which, as we describe in the paper, is consistent with increasingly pro-enforcement outcomes in cases that are litigated.
Judicial outcomes in litigated merger cases have not varied depending on whether judges were appointed by Republican or Democratic presidents.
The Judicial Standards study accounts statistically for the party of the president who appointed the judges in the litigated cases examined. The result: the party of the president appointing the deciding judges does not appear to influence outcomes in litigated merger cases. This finding is inconsistent with the narrative that politically driven changes in the composition of the federal judiciary systematically weaken enforcement outcomes.
There is evidence that Agency-driven policies have led to pro-enforcement changes in antitrust doctrine.
We conclude with several observations that are based on a review of Agency policy and practice and the evolving case law on merger enforcement. We first briefly consider the argument that the Agencies have become more risk-averse in reaction to perceptions of a hostile judiciary, resulting in less aggressive case selection. Evaluating the Agencies’ case selection is challenging, but one insight into the question emerged from Shapiro and Shelanski’s 2021 article assessing the judicial response to the 2010 Horizontal Merger Guidelines (“HMGs”). They examined whether the 2010 HMGs’ increase in the HHI concentration thresholds that trigger a presumption of competitive harm was associated with any change in merger enforcement. They found no increase in the HHI levels in mergers the Agencies challenged in court after 2010; rather, they found a modest decrease. These findings from a limited sample are not consistent with the premise that the Agencies were less aggressive in pursuing cases in concentrated markets after the 2010 HMGs were issued.
Our primary method of assessing the claim of increasing judicial hostility to merger enforcement is the quantitative study discussed in section 4, above, in which we found that the probability that the Agencies win litigated merger challenges actually increased over time. We also reviewed the Agencies’ merger enforcement policies, and judicial decisions, to consider qualitatively the claim that judicial doctrine has evolved in an anti-enforcement direction. We observe that the evolution of merger law and policy has not consistently increased the burden for the Agencies to prevail in merger litigation, but often cuts in the other direction, strengthening the Agencies’ hand in a number of ways. This evolution is noteworthy both as a response to the “hostile judicial doctrine” narrative and as one possible explanation for the Agencies’ increasing propensity to win in litigated merger cases.
Over the years, successive iterations of the HMGs introduced a variety of new analytical tools that arguably enhanced the ability of the Agencies to prevail in court. For example, the earliest iterations of the HMGs relied primarily on coordinated effects as the basis for challenging mergers. In 1992, the HMGs expanded the Agencies’ toolkit to include challenges based on the potential for mergers to harm competition by the unilateral post-merger behavior of the surviving firm. This pro-enforcement change was aptly referred to as a “paradigm shift” in merger analysis. In 2010, the HMGs further strengthened the Agencies’ hands by broadening unilateral effects to include auction settings, capacity manipulation, and harm resulting from reduced innovation and product variety.
A 2021 special issue of the Review of Industrial Organization collected several articles studying the impact of the 2010 HMGs after ten years of implementation. The symposium concluded that the guidelines “have aged well” and grown in impact, with courts increasingly issuing opinions endorsing the Agencies’ analytical approach to horizontal merger enforcement in several areas, most notably unilateral competitive effects. The symposium detailed how the 2010 HMGs incorporated significant advances in unilateral effects analysis that had been articulated in the economic literature and incorporated into Agency practice.
As noted above, Shapiro and Shelanski’s article in the symposium reviewed all judicial decisions in merger cases between 2000 and 2020. In addition to finding that the Agencies’ litigation win rate increased after the 2010 HMGs, they found that courts consistently cited the guidelines with approval, embracing and applying their analytical framework: “In particular, we find that the richer explanation of how the Agencies use qualitative and quantitative evidence to assess competitive effects has favorably influenced the case law and strengthened merger enforcement.” They observe that “The case law now exhibits much greater receptivity to a government showing that the merger will lead to higher prices due to the loss of direct competition between the two merging firms.”
The 2010 HMGs’ treatment of unilateral competitive effects is a clear counterexample to key elements of the “lax enforcement” narrative: an Agency-led, pro-enforcement policy initiative, which successfully shaped the pro-enforcement evolution of judicial doctrine and arguably led to pro-enforcement outcomes.
The analysis of entry conditions is another area in which merger policy has evolved in a pro-enforcement direction. The 1982 merger guidelines afforded merging parties the opportunity to defend a merger by demonstrating ease of entry, but entry analysis was tightened considerably in 1992, when the HMGs introduced the requirement that post-merger entry must be “timely, likely and sufficient” to deter anticompetitive price increases. For each of these qualifiers, later versions of the HMGs have provided tests for entry to be judged “so easy that the merged firm and its remaining rivals in the market, either unilaterally or collectively, could not profitably raise price in the absence of the merger.” These tests of timeliness, likelihood, and sufficiency of entry have subsequently been widely adopted by the courts—effectively raising the judicial bar for parties to defend a merger based on ease of entry.
Successive iterations of the HMGs—and, often in response to the HMGs, judicial decisions –added a variety of new tools by which competitive harm from mergers may be demonstrated. For example, the 2010 HMGs provide that the Agencies may employ direct evidence of anticompetitive effects—either historical events or natural experiments, such as the “impact of recent mergers, entry, expansion, or exit in the relevant market.” The 2010 HMGs also include language indicating that the positioning of individual firms within a market—beyond their size—is important in the competitive effects analysis. Specifically, the HMGs indicate that “[t]he extent of direct competition between the products sold by the merging parties is central to the evaluation of unilateral price effects.” This focus on the extent to which merging parties are direct rivals within a market has provided the Agencies a new vehicle to successfully challenge mergers. Similarly, the HMGs now identify a method for diagnosing post-merger upward pricing pressure that “need not rely on market definition or the calculation of market shares and concentration.” This potential to—in some circumstances—circumvent the rigorous and often controversial market definition process offers an expedited path for the Agencies in merger litigation.
Yet another new HMG tool that the Agencies have successfully employed in court stems from bargaining theory. The HMGs now indicate that “[a] merger between two competing sellers prevents buyers from playing those sellers off against each other in negotiations. This alone can significantly enhance the ability and incentive of the merged entity to obtain a result more favorable to it, and less favorable to the buyer, than the merging firms would have offered separately absent the merger.” Although the success of this theory in court has been mixed, it has expanded the Agencies’ enforcement tools and arguably enhanced the Agencies’ ability to prevail in court.
Judicial treatment of merger challenges has evolved in other ways that appear to strengthen the hands of the Agencies. For example, in FTC v. HJ Heinz Co., the D.C. Circuit indicated that generic claims of structural market barriers to collusion (such as the need for cartel members to agree on price and output, post-cartel incentives for participants to defect from such agreements by expanding output, and difficulties in sustaining collusive prices when firms cannot readily identify other firms’ prices) are insufficient to rebut the normal presumption that increased market concentration raises both the incentive and ability for post-merger behaviors to increase prices. As noted above, courts have also increasingly embraced the proposition that mergers that substantially reduce or eliminate direct competition between close competitors often result in a lessening of competition. And the Supreme Court has made it more difficult for merging parties to successfully claim a state-action immunity defense for an otherwise anticompetitive merger.
Finally, the narrative of more permissive judicial standards toward mergers often points to a weakening of the structural presumption. Baker and Shapiro argue that the structural presumption has substantially weakened as “[c]ourts and enforcers today place less weight on market structure, pay closer attention to possible expansion by smaller suppliers and entry by new ones, and exhibit less hostility to merger efficiencies.” Yet, while both the HMGs and the courts have expanded their assessment of the competitive implications of mergers beyond a focus on market shares alone, the structural presumption remains an important element of merger analysis. Under the burden-shifting approach in United States v. Baker Hughes, once the Agency has shown that a merged firm controls an undue share of the relevant market and would result in a significant increase in market concentration, a “presumption” exists that the merger will substantially lessen competition. The burden then shifts to the merging parties to rebut the presumption. The practical implication of this burden-shifting can be quite important in practice as, once met, the difficulty the merging parties (Agencies) face in securing a favorable ruling is elevated (reduced). Indeed, we are unaware of any litigated merger case employing this now standard burden-shifting framework in which the government did not successfully shift the burden in court.
In sum, while proponents of major reforms in merger policy have emphasized increasing hurdles in the judicial burdens faced by the Agencies, other shifts have occurred that arguably have enhanced the ability of the Agencies to prevail in merger challenges. These numerous examples, along with our quantitative findings reported above, are inconsistent with the narrative of increasingly permissive judicial standards toward mergers.
Conclusion
Antitrust enforcement in the merger area lends itself relatively well to empirical analysis, due to the availability of reliable data and the ability to define testable questions. And most of the purportedly factual (as opposed to the ideological) elements of the “lax enforcement” narrative are indeed testable. Our findings are inconsistent with each of these elements of the narrative. Declining merger enforcement output by the Agencies? We find that output has significantly increased during the HSR era. Declining Agency success in litigated cases? Agency success in court has increased. Evidence that political appointments have adversely affected Agency output and the Agencies’ success in court? Our analysis does not support this. A trend toward less aggressive enforcement by the Agencies, in response to judicial hostility toward antitrust enforcement? The available evidence points to the contrary—that the Agencies tend to drive merger policy, and that they frequently drive both policy and judicial doctrine in a pro-enforcement direction.
Our work leads us to one recommendation, which may seem an anachronism in today’s political and social environment: as in any area of public policy formation, proposals to reform antitrust policy should be evaluated on the basis of sound analysis of the best available data, including a clear-eyed assessment of the impact—positive and negative—of current policy, and of the likely effects of any changes.
