The Department of Justice and Federal Trade Commission on Tuesday announced a joint effort to rewrite US antitrust law for handling mergers and acquisitions.
Don’t hold your breath, though
The two agencies are opening a 60-day public comment period for individuals, companies and organizations to submit concerns about M&A and antitrust regulation. That material will then be digested and the two agencies will come out with a joint document that will also be published for a public comment period. The final version must still eventually be tested in court.
But the process has to start somewhere and this is a “timely and ripe” moment for an overhaul of M&A-based antitrust suits, said FTC Chair Lina Khan in a statement to press.
Merger suits more than doubled from 2020 to 2021, she said. And the pace of M&A is still heating up this year.
Why new merger guidelines?
A lot has happened in the 12 years since the current merger guidelines were published.
For example, John Kwoka, an economist consulted by the FTC on merger cases, explained that issues such as impacts on labor markets and cases of monopsomy – when a single buyer controls demand in a category and can thus control its own prices (looking at you, Amazon) – were not proposed for public comment or discussed as part of the current guidelines.
Khan also cited “moat building, data aggregation strategies and rollup plays by private equity” as examples of M&A priorities for businesses that current antitrust guidelines aren’t well-equipped to tackle.
New guidelines might ding a private equity buyer if its goal or the outcome of its acquisition is to reduce costs through job reduction.
Historically, US antitrust enforcement – i.e., how it’s currently done – focuses on instances when huge companies control or influence prices for consumers or business competitors.
Data-driven online advertising giants like Google and Facebook have been able to clear important acquisitions (YouTube and Instagram, for instance) in part because as free services regulators can’t point to higher consumer prices.
“It’s quite clear that that lens is unduly narrow,” Kwoka said.
New merger guidelines would likely consider the impact of a merger on labor markets or prioritizing “innovation” within a category in cases where metrics like consumer pricing don’t apply to free services.
The vertical rabbit hole
Another fetter on US regulators is the narrow antitrust application for vertical mergers.
Horizontal mergers are when one company buys a direct competitor, thus removing one player from the market. These deals get much tougher scrutiny than vertical mergers, when a company enters a new market, which are treated relatively loosely.
Amazon acquired Whole Foods as a splashy entrance into the brick-and-mortar business and faced no trouble. But now that it’s a player in the category, a much smaller deal for a regional grocery chain might be blocked as a horizontal acquisition.
Limiting suits to horizontal mergers doesn’t account for “multidimensional” markets that exist today, said Assistant Attorney General Jonathan Kanter, who leads the DOJ antitrust division.
Any time someone checks the weather forecast or orders coffee online, a network of interconnected services, sometimes dozens of companies, are operating in the background, he said. And that rarely happens with the consumer’s knowledge.
Khan said that “a wealth of new scholarship” on this topic has emerged in recent years. She became a leading regulatory figure after a 2017 Yale Law Review article titled “Amazon’s Antitrust Paradox.”
Kanter is another young antitrust lawyer who rose to prominence torching big tech companies.
But the wheels of regulation move slowly. Even if DOJ and FTC leaders are rearing to challenge more merger deals, they need new guidelines that can support their cases – and they need to convince legislators and judges to get behind the rules.
That’s why it will take multiple public comment periods and months or years until a final document can be published. Regulators need to identify consumers and small businesses complaining of actual harm.
“Our message to the American people is … please share your views,” Kanter said.
