How Antitrust Works In An Economic Downturn
Despite recent rhetoric calling for an overhaul of our mergers and acquisition framework, it’s important to remember that antitrust is built to work in times of crisis as well. Our antitrust framework has long provided resilience and protection for those who need it. In a time of such uncertainty, U.S. antitrust law remains tried and true.
As critics attempt to use COVID-19 to justify misguided antitrust overhauls, keep these proven points in mind:
— Today’s antitrust framework includes an exception for failing firms, already giving them a “way out.”
— Existing merger reviews are structured to ban anticompetitive transactions, and unnecessary changes to this framework could have unintended consequences.
—Past and present experiences demonstrate that our merger control framework is fit to withstand a crisis.
Today’s antitrust framework includes an exception for failing firms, already giving them a “way out.”
Firms experiencing financial difficulties have the ability to “safeguard long-term survival” via mergers, as highlighted in the 2009 OECD Roundtable on Failing Firm Defence. “In times of financial and economic crisis, such as the one we are currently experiencing, more firms may find themselves in financial difficulty. Firms in financial distress will seek to safeguard their long-term survival possibly by merging with direct, healthier competitors.”
Antitrust enforcement can be a tool for companies and the broader economy in times of crisis, finds Marianela López-Galdos of the Computer & Communications Industry Association. In an analysis of the doctrine of failing firm defense in the United States and the EU, it was found that “when firms are failing during an economic crisis, antitrust laws can play a key role in reactivating the economy, provided that the antitrust authorities apply the rule of reason and economic analysis accurately.”
Existing merger reviews are structured to ban anticompetitive transactions, and unnecessary changes to this framework could have unintended consequences.
Merger reviews remain thorough, with widespread potential for consumer benefit amidst COVID-19, writes FTC Commissioner Noah Phillips. “Even when M&A is reduced, it has an important role to play during a period of economic adjustment. Consumers benefit if a merger leads to the delivery of products or services that a company could not efficiently provide on its own, and from the innovation and lower prices that better management and integration can provide. Workers benefit, too, as they remain employed by going concerns. It serves no good, including for competition, to let companies that might live, die. While merger review is not currently the top-of-mind issue for many — and it shouldn’t be — American consumers stand to gain from pro-competitive mergers, during and after the current crisis.”
Merger regulation should be driven by economic effects, rather than labels focused elsewhere, notes FTC Commissioner Christine Wilson. “Any new vertical merger guidance should focus squarely upon economic effects, not labels. The Director of the FTC’s Office of Policy Planning, Bilal Sayyed, recently addressed this issue within the context of platforms, which can encompass many different vertical relationships. In a speech at [Georgetown University Law Center], Bilal said that, when evaluating platform businesses, ‘it is necessary for the Commission (and courts) to start with a careful evaluation of the effect of the conduct under review, not its label.'”
As Mark Jamison of AEI says, when it comes to mergers, “theory and practice should not contradict one another.” “Sometimes researchers make claims that can grab headlines, but upon further investigation, their theories don’t line up with reality… As I have explained before, profit potential drives startups. And options have value to startups, including options of selling an idea or product to an incumbent that has proven business acumen.”
— “The implications for antitrust can be significant. Antitrust policies that reflect ‘anti-bigness’ will drive capital from the sector, making it harder for startups to get funding. This hurts competition and consumers. Anti-merger policies also decrease the number of startups because the policies decrease profit prospects for both the lower end of the industry and the higher end.” (AEI)
Antitrust law successfully distinguishes between pro- and anti-competitive leveraging, ensuring that anticompetitive conduct is banned, argues Patrick Todd in the Nebraska Law Review. “Empirical criteria that have been present in comparable instances of such intervention, such as bottleneck power over distribution, widespread harm to adjacent market competition, static product boundaries, and a lack or unimportance of integrative efficiencies, are not satisfied in the current context. Absent some proof that they are, the consumer welfare framework under antitrust law should prevail without recourse to more intrusive intervention.”
Past and present experiences demonstrate that our merger control framework is fit to withstand a crisis.
Our current antitrust framework is built to handle crises like COVID-19, as explained by the U.S. Department of Justice. “Many types of collaborative activities designed to improve the health and safety response to the pandemic would be consistent with the antitrust laws… The Agencies have also explained that most joint purchasing arrangements among healthcare providers, such as those designed to increase the efficiency of procurement and reduce transaction costs, do not raise antitrust concerns.”
Antitrust has led American firms through various crises—ranging from Hurricane Katrina to the 2008 economic recession—and is equipped to do so now, as reinforced by the U.S. Department of Justice. “The federal antitrust laws are sufficiently flexible and resilient to accommodate beneficial collaborations, including collaborations among competitors, of appropriate scope and limited duration…. The antitrust laws allow businesses to create joint ventures and other collaborative arrangements through which they are likely to produce net procompetitive benefits for consumers. Such arrangements frequently serve as an efficient method for firms to combine skills or resources to supply products or services at a lower cost or that would not otherwise be available. Consumers benefit from competitor collaborations in a variety of ways.”