Abstract
This article provides an overview of economic analysis in three prominent merger investigations and litigations: Electrolux’s proposed acquisition of General Electric’s appliance division, Halliburton’s bid for Baker Hughes, and United Airline’s attempt to acquire additional airport slots at Newark Liberty International Airport. In each, the parties abandoned their proposed transaction after the Division had filed suit to block the acquisition. While we cannot recount all the analyses underpinning these outcomes, we hope to provide some insights into the challenges of enforcing antitrust law and the way in which economic analysis in particular is used to address those challenges.
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Notes
See, e.g., Baer (2016).
U.S. V. Anheuser-Busch InBev SA/NV and SABMiller PLC, Competitive Impact Statement, July 20, 2016, p. 12. Available at: https://www.justice.gov/atr/file/877621/download.
Case materials for each of these are available at: https://www.justice.gov/atr/antitrust-case-filings-alpha.
Antitrust Division press release, 12/7/15 (https://www.justice.gov/opa/pr/electrolux-and-general-electric-abandon-anticompetitive-appliance-transaction-after-four-week).
The Division’s Complaint in U.S. v. AB Electrolux, Electrolux North America, Inc., and General Electric Company, filed in US District Court in Washington, D.C. is available at https://www.justice.gov/atr/file/624751/download.
Together these five manufacturers comprise 85.3% of unit sales and 95.7% if one attributes Kenmore’s share to Electrolux. Whinston (2015), p. 35.
U.S. v. AB Electrolux, Electrolux North America, Inc., and General Electric, Co, Case No. 15-01039-EGS (D.C. 2015), December 4, Transcript at 4605:5–7.
Whinston (2015), at 56, 57.
Note that this assumes, for the sake of argument, that the claimed savings would occur as a result of the merger and only as a result of the merger; this is an assumption that the Division has often found reason to question.
Upward pricing pressure is formalized in Farrell and Shapiro (2010).
Specifically, the UPP for GE on a particular cooking appliance is the product of the sales of that appliance that are diverted from GE to Electrolux times GE’s margin on those sales, and vice versa for Electrolux’s diversion to GE.
See Sect. 6.1 of Horizontal Merger Guidelines (2010).
Antitrust Division press release, 3/29/2006 (https://www.justice.gov/archive/opa/pr/2006/March/06_at_187.html).
U.S. v. AB Electrolux, Electrolux North America, Inc., and General Electric, Co, Case No. 15-01039-EGS (D.C. 2015), December 4, Transcript at 4570: 9–14.
U.S. v. AB Electrolux, Electrolux North America, Inc., and General Electric, Co, Case No. 15-01039-EGS (D.C. 2015), December 4, Transcript at 4580: 2–10.
Horizontal Merger Guidelines (2010), Sect. 2.1.2.
Orszag included measures of housing unit starts as a control in his regressions, but given that the magnitude of the financial crisis was unlike any previous episode since the Great Depression, it is difficult to know whether that would be close to adequate to control for the impact of the aggregate demand shock.
Halliburton Press Release, November 17th, 2014. http://www.halliburton.com/public/news/pubsdata/press_release/2014/HAL-BHI-Joint-Announcement-Press-Release.pdf.
Complaint in U.S. v. Halliburton Co., and Baker Hughes Inc., April 6, 2016, paragraph 73. Available at: https://www.justice.gov/atr/file/838661/download. Hereafter, “U.S. v. Halliburton Complaint”.
Halliburton-Baker Hughes Joint Press Release, May 1st, 2016. http://www.halliburton.com/public/news/pubsdata/press_release/2016/halliburton-baker-hughes-terminate-merger.html.
Shares are for the U.S. market as alleged in the Complaint. Three problematic markets are not shown because of data limitations: Cased Hole Wireline Services for Rigs in Deepwater, Multilateral Completion Systems, and Integrated Refracturing Solutions.
In 2015, Halliburton invested $487 million in research and development, while Baker Hughes invested $483 million. U.S. v. Halliburton Complaint, paragraphs 4–5.
U.S. v. Halliburton Complaint, paragraph 68.
U.S. v. Halliburton Complaint, paragraphs 63–64.
Halliburton Press Release, November 17th, 2014. http://www.halliburton.com/public/news/pubsdata/press_release/2014/HAL-BHI-Joint-Announcement-Press-Release.pdf.
U.S. v. Halliburton Complaint, paragraph 11.
U.S. v. Halliburton Complaint, paragraph 69.
U. S. Department of Justice, Antitrust Division Policy Guide to Merger Remedies, June 2011, p. 1. Available at: https://www.justice.gov/sites/default/files/atr/legacy/2011/06/17/272350.pdf.
U.S. v. Halliburton Complaint, paragraph 78.
U.S. v. Halliburton Complaint, paragraph 74.
U.S. v. Halliburton Complaint, paragraph 74.
Remarks of Loretta Lynch, April 6, 2016. https://www.justice.gov/opa/speech/attorney-general-loretta-e-lynch-delivers-brief-remarks-press-conference-call-announce.
FAA slots regulations prohibit the sale of slots, but leases are permitted. The two slots leases were written in such a way as to be in effect so long as they continued to be permitted by law. The contracts also allowed for the possibility of the leases becoming permanent sales if ever the law should change to permit slots sales.
In this article, our focus is on the under-utilization of slots that results from airlines’ scheduling fewer flights than would be possible given their slot holdings. There will always be some deviation from scheduled operations—for example, from weather conditions that lead to flight cancellations—that are unrelated to the exercise of market power.
Tracy Lee, United Vice President for Operations, quoted in Berger (2016).
The Port Authority of NY & NJ, “2015 Airport Traffic Report”. http://www.panynj.gov/airports/pdf-traffic/ATR_2015.pdf.
To construct the HHI for Newark, the Division calculated slot holdings with the use of FAA records of slot assignments and then adjusted those slot holdings with the use of documents on long-run sublease agreements that are not accounted for in the FAA records. Because complete long-run lease agreements for JFK and LaGuardia were not available to the Division, the HHIs for these airports were calculated from flight frequencies. The Newark HHI that is calculated from flight frequencies is 5367, which is very close to the slots-based HHI that is reported above.
Consider, for example, the argument that Newark fares simply reflect higher network quality. Israel et al. (2013) find that average fares are higher at Newark than at LaGuardia and JFK, both with and without accounting for network quality.
On United’s post-transaction plans, see the Antitrust Division’s Complaint in U.S. v. United Continental Holdings, Inc., and Delta Air Lines, Inc. (November 10, 2015): https://www.justice.gov/atr/case-document/file/792471/download.
The Division also considered Delta’s ability to adjust by flying outside of slot-controlled hours or by increasing the size of its jets to accommodate more passengers within slot-controlled hours. Even under the most optimistic scenario, this re-optimization could not fully eliminate the harm that would be caused by this transaction.
The five destinations that Delta served from Newark were Atlanta, Cincinnati, Detroit, Minneapolis, and Salt Lake City. United also offered Newark flights to each of these destinations with the exception of Salt Lake City, for which Delta was the sole carrier.
Federal Aviation Administration, “FAA Announces Slot Changes at Newark Liberty International”, April 1, 2016. https://www.faa.gov/news/updates/?newsId=85309.
“Allegiant Air to Begin Offering Flights From Newark Airport”, Wall Street Journal, June 28, 2016. http://www.wsj.com/articles/allegiant-air-to-begin-offering-flights-from-newark-airport-1467125620. These destinations are Asheville, North Caroline; Savannah, Georgia; Cincinnati, Ohio; and Knoxville Tennessee.
Richard Newman, “United Airlines facing new competition at Newark International Airport”, June 28, 2016, NorthJersey.com. http://www.northjersey.com/news/united-airlines-facing-new-competition-at-newark-international-airport-1.1623116.
Nick McCrea, “United adding new seasonal flights between Bangor and Newark”, Bangor Daily News, April 19, 2016. http://bangordailynews.com/2016/04/19/business/united-adding-new-seasonal-flights-between-bangor-and-newark/.
Cheryl Truman, “United announces nonstop service from Lexington to Newark”, Lexington Herald Leader, April 19, 2016. http://www.kentucky.com/news/business/article72623422.html.
Fort Wayne-Allen County Airport Authority, “FWA and United Airlines Announce Nonstop Service”, April 18, 2016. https://fwairport.com/news/fwa-and-united-airlines-announce-nonstop-service-to-new-york-newark.
Dominic Adams, “United adding direct flights from Flint to Newark for NYC travel”, mLive.com, April 19, 2016. http://www.mlive.com/news/flint/index.ssf/2016/04/bishop_airport_gets_non-stop_f.html.
Bill Baer in testimony before the Antitrust Subcommittee of the Senate Judiciary Committee, as reported in Bartz (2016).
The White House. Executive order—steps to increase competition and better inform consumers and workers to support continued growth of the American economy, April 15, 2016. https://www.whitehouse.gov/the-press-office/2016/04/15/executive-order-steps-increase-competition-and-better-inform-consumers.
See the Antitrust Division’s Mission Statement at https://www.justice.gov/atr/mission.
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The views expressed in this article are those of the authors and do not necessarily reflect those of the Antitrust Division or the U.S. Department of Justice. As a work of U.S. Government employees, this aticle is not subject to copyright protection in the United States. Foreign copyrights may apply.
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Chugh, R.C., Goldstein, N.G., Lewis, E.K. et al. Economics at the Antitrust Division 2015–2016: Household Appliances, Oil Field Services, and Airport Slots. Rev Ind Organ 49, 535–556 (2016). https://doi.org/10.1007/s11151-016-9550-z
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DOI: https://doi.org/10.1007/s11151-016-9550-z