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The 2023 Merger Guidelines: A Post-Chicago and Neo-Brandeisian Integration

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Abstract

This article is designed to explicate the somewhat misunderstood analysis in the 2023 Merger Guidelines (MGs) and situate the MGs in the context of the legal as well as economic environment in which they operate. The MGs refine economic analyses in previous MGs, renew emphasis on certain competitive concerns and approaches, and add several emerging new competitive issues. They also integrate certain goals of post-Chicago and Neo-Brandeisian approaches to merger analysis. The MGs integrate the economic analysis into the traditional legal structure of the “prima facie” and “rebuttal” evidentiary stages and place greater weight on avoiding false negatives over false positives in various places, which is a principal element in both post-Chicago and Neo-Brandeisian approaches. An important theme that runs through the 2023 MGs is that competitive effects analysis should not be limited to static competitive effects analysis of the immediate unilateral or coordinated price effects of a merger. They stress that the analysis should also account for the dynamic effects that result from the change in market structure that follows from the merger as well as the changes in the incentives of the firms. As in the seminal Spence-Dixit models, the entrant would rationally anticipate that the lower marginal costs of the merged firm could produce more intense post-entry price competition and a higher likelihood that the entry would be unprofitable. Thus, higher barriers to entry or expansion may result, which means that the merged firm’s rebuttal burden of production under the sliding scale should be increased accordingly under the decision theory risk analysis that places greater weight on avoiding false negatives.

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Notes

  1. *For another description of this integration (as well as the source of the title of this article), see Baker (2024). The 2023 Merger Guidelines strengthen enforcement by finding common ground. ProMarket.

  2. Some might argue that previous MGs were respected because they presented only “consensus” economic views rather than legal interpretations that were affected by the drafters’ policy preferences. But the MGs never represented an economist consensus, which is no surprise given the diversity of views among industrial organization economists. As a clear example, no one would say that the 2020 Vertical Merger Guidelines represented an economist consensus. As for the proper role of the MGs, they are designed to guide law enforcement, so they cannot ignore the law.

  3. Kintner (1978, p. 2515). The language in the House bill was “where the effect is to eliminate or substantially lessen competition.” Kintner (1978, p. 2515) (quoted in Salop (forthcoming 2024, p. 11 n. 52)).

  4. The FTC’s remedy study of its consent decrees in 2006–2012 found that many orders were insufficient. Among all horizontal merger consent decrees, 19% failed to restore or preserve competition, and 15% were only “qualified successes” because they took longer than two to three years to restore competition, indicating significant competitive harm in 34% of the consents. Federal Trade Commission. (2017). The FTC’s merger remedies 2006–2012: A report of the Bureaus of Competition and Economics, at 7. Retrieved from: https://www.ftc.gov/system/files/documents/reports/ftcs-merger-remedies-2006-2012-report-bureaus-competition-economics/p143100_ftc_merger_remedies_2006-2012.pdf.

  5. At 40%, the expected error costs are equal (0% x $150 = 60% x $100. At 41%, the expected welfare cost of permitting the merger is higher. For further details, see Salop (forthcoming 2024).

  6. Hospital Corp. of America v. FTC, 807 F.2d 1381, 1389 (7th Cir. 1986) (citing U.S. v. Philadelphia National Bank, 374 U.S. 312, 362 (1963)).

  7. FTC v. Elders Grain, Inc., 868 F.2d 901, 906 (7th Cir. 1989).

  8. 374 U.S. at 364–366.

  9. See, e.g., Salop (2015).

  10. U.S. v. Baker Hughes, Inc., 908 F.2d 981, 991 (D.C. Cir. 1990).

  11. FTC. v. H.J. Heinz Co., 246 F.3d 708, 717 (D.C. Cir. 2001).

  12. I consulted with the merging parties on this case. Readers may be interested in the fact that Jonathan Baker was the expert witness for the parties.

  13. The 1982 MGs explained that “[a]lthough they sometimes harm competition, mergers generally play an important role in a free enterprise economy. They can penalize ineffective management and facilitate the efficient flow of investment capital and the redeployment of existing productive assets. While challenging competitively harmful mergers, the Department seeks to avoid unnecessary interference with that larger universe of mergers that are either competitively beneficial or neutral.” U.S. Department of Justice. (1982). Merger Guidelines, § I. Retrieved from: https://www.justice.gov/archives/atr/1982-merger-guidelines (“1982 MGs”).

  14. 15 U.S.C. § 18 (emphasis added).

  15. See Federal Trade Commission. (2017). The FTC’s merger remedies 2006–2012: A report of the Bureaus of Competition and Economics, at 7. Retrieved from: https://www.ftc.gov/system/files/documents/reports/ftcs-merger-remedies-2006-2012-report-bureaus-competition-economics/p143100_ftc_merger_remedies_2006-2012.pdf.

  16. The 2010 HMGs adopted 2500 as consistent with Agency practice, but not based on a balancing of the relative concerns from false negatives versus false positives, nor on legal doctrine. U.S. Department of Justice and the Federal Trade Commission. (2010, August 19). Horizontal Merger Guidelines. Retrieved from: https://www.justice.gov/sites/default/fles/atr/legacy/2010/08/19/hmg2010.pdf (“2010 HMGs”).

  17. In this article, I will follow the economist convention of using price competition to illustrate the analysis, but with a recognition that an analogous analysis can be applied to non-price dimensions of competition. However, it has been recognized that the fact that price effects are easiest to quantify can lead to merger analysis and litigation being over-focused on price effects. See Salop & Scott Morton (2021, p. 93).

  18. U.S. Department of Justice and Federal Trade Commission. (2023). Merger Guidelines, § 3.2. Retrieved from: https://www.justice.gov/d9/2023-12/2023%20Merger%20Guidelines.pdf (“2023 MGs”).

  19. See Spence (1977) and Dixit (1980).

  20. For application to the standard for measuring “easy” likelihood of entry, see U.S. Department of Justice and Federal Trade Commission. ((1992, April 2) (revised 1997, April 8)). Horizontal Merger Guidelines, § 3.3. Retrieved from: https://www.justice.gov/atr/horizontal-merger-guidelines-0 (“1992 HMGs”). For analysis of the impact of a merger on post-entry competition and the likelihood of entry when minimum viable scale is substantial, see Salop (1986).

  21. Gelman & Salop (1983, pp. 317–319).

  22. Denicolò & Polo (2021).

  23. Varney (2011, p. 659); Shapiro (2010, p. 58 n.34).

  24. It also is an overstatement to say that the HHI level does not matter. First, in the Cournot model with a constant elasticity of demand, the HHI equals the product of the weighted-average price–cost margin and the demand elasticity. Nocke and Whinston (2022, p. 1924, Eq. (3)). Second, if there is a small efficiency credit, the critical cost savings to prevent a consumer welfare loss is larger when the HHI level is higher. Nocke and Whinston (2022, p. 1936).

  25. 1982 MGs, § III.A.2 (“the Department is likely to challenge [such] merger[s]”).

  26. Shapiro (2010, pp. 74–75).

  27. Willig (1991) showed that the measure of upward pricing pressure is related to the increase in the HHI and the market share of the merged firm when the diversion ratios are proportional to market shares. See also Shapiro (2010, pp. 62–63).

  28. We also had recommended that the MGs should note the “multilateral” reinforcing effect of elimination of head-to-head competition in the Bertrand model of differentiated product competition. Salop and Scott Morton (2021, p. 86).

  29. 2010 HMGs, § 7.1.

  30. U.S. v. H&R Block, 833 F.Supp.2d 36 (D.D.C. 2011).

  31. For further analysis, see Baker & Farrell (2021).

  32. Salop (2015, pp 304–305) and Salop and Scott-Morton (2021, pp. 90, 92) made similar recommendations with regard to attempted collusion and acquisition of a maverick, assuming that the market was highly concentrated. Of course, a highly concentrated market is considered sufficient by itself to satisfy the Agency’s prima facie case and shift the burden under Guideline 1.

  33. 2023 MGs, § 2.3.B. (emphasis added) (quoting FTC v. H.J. Heinz Co., 246 F.3d 708, 724 (D.C. Cir. 2001)).

  34. 2023 MGs, § 2.3.B. The MGs do not point to supportive evidence for this contention. Doing so in a commentary would make the statement more credible.

  35. In re B.A.T. Industries, 104 F.T.C. 852, 926 (1984).

  36. FTC v. Meta Platforms Inc., 654 F. Supp. 3d 892, 927 (N.D. Cal. 2023).

  37. Simons, J. J. (2020). Remarks at ABA Section of Antitrust Law Fall Forum 2020. Retrieved from: https://www.ftc.gov/system/files/documents/public_statements/1583022/simons_-_remarks_at_antitrust_law_fall_forum_2020.pdf.

  38. Considering the current legal standards, the 2023 MGs did not propose an anticompetitive presumption in Guideline 4 for actual potential entry cases. Guideline 6 suggests strong concerns with regard to acquisitions of nascent competitors—though it also does not adopt an anticompetitive presumption.

  39. Baker (2015, p. 10).

  40. Salop (2021).

  41. Gilbert & Newbery (1982); Hovenkamp & Salop (2023).

  42. Salop (2021).

  43. 2023 MGs, § 2.4.

  44. Salop (2018). Baker et al. (2019).

  45. See Federal Trade Commission. (2023). Biopharmaceutical giant Amgen to settle FTC and state challenges to its Horizon Therapeutics acquisition. Retrieved from: https://www.ftc.gov/news-events/news/press-releases/2023/09/biopharmaceutical-giant-amgen-settle-ftc-state-challenges-its-horizon-therapeutics-acquisition.

  46. Ayres (1985).

  47. To clarify terminology, note that these rivals that purchase inputs from the merged firm are not totally dependent. They have alternative sources. Dependent denotes that the rivals purchase some or all of their needs from the upstream merging firm.

  48. Salop (2023). Revising Guideline 6 with evidence to establish a structural inference for input foreclosure. ProMarket. Retrieved from: https://www.promarket.org/2023/09/29/revising-guideline-6-with-evidence-to-establish-a-structural-inference-for-input-foreclosure/.

  49. The idea is that input price increases by the upstream merging firm raise rivals’ costs and place pressure on the rivals to increase their prices. So this pressure is similar to what would occur if the merged firm acquired the rivals and controlled their prices. While simple, this test overstates the effect because the upstream merging does not totally control the prices of the rivals. The second test is designed to capture this idea of partial control as derived from a rigorous economic model.

  50. In a previous article, I provide analysis and hypothetical examples of these and some additional issues. See Salop (2022).

  51. Ordover et al. (1990).

  52. Krattenmaker and Salop (1986) refer to this as the “Frankenstein Monster” theory.

  53. This is a useful addition because it was not included in the 2020 VMGs. See Salop (2019, p. 30).

  54. Hemphill & Wu (2012).

  55. The vertical merger also may lead to greater symmetry in costs, which also could lead to a greater likelihood of coordination. This mechanism was alleged by the DOJ in the Monsanto/Premdor doorskins merger in 2000 that led to the private action against Jeld-Wen in 2018. Steves & Sons, Inc. v. Jeld-Wen, Inc., 345 F. Supp. 3d 614 (E.D. Va. 2018), aff'd in part, vacated in part, remanded, 988 F.3d 690 (4th Cir. 2021).

  56. See., e.g., Binmore et al., (1986, pp. 186–187).

  57. For example, in his AT&T/Time Warner opinion, Judge Leon characterized the Nash Bargaining Equilibrium model as a Rube Goldberg machine. U.S. v. AT&T Inc., 310 F. Supp. 3d 161, 241 (D.D.C. 2018). However, it was the case that this model had been used by economists in several other matters, including the FCC’s evaluation of the Comcast/NBC merger. For a description of the FCC’s analysis, see Baker (2011) and Rogerson (2014).

  58. Wasserstein & Lazar (2016).

  59. See, e.g., Kaye (1983); Rubinfeld (1985); Johnson, Leamer, & Leitzinger (2017).

  60. 2023 MGs, p. 29.

  61. 2023 MGs, § 2.11.

  62. The fact that contract prices were indexed to spot prices gave rise to the conduct in the classic Socony Vacuum collusion case. U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940).

  63. This hypothetical cartel issue was flagged in the 2010 HMGs at § 4.1.1 n.4 for the analogous case of firms that control additional substitutes rather than complements.

  64. 2023 MGs, § 2.5 n.31.

  65. In fact, Chen explains that this is a reason a vertical merger can have anticompetitive effects even in the absence of foreclosure.

  66. This general point is implicit in Sect. 2.3. But the point would have been clearer to courts and merging counselors if it had been included in the EDM footnote.

  67. Initial Decision. (2022). In the Matter of Illumina, Inc., and GRAIL, Inc. FTC Docket No. 9401. Retrieved from: https://www.ftc.gov/system/files/ftc_gov/pdf/D09401InitialDecisionPublic.pdf.

  68. Commission Opinion. (2023). In the Matter of Illumina, Inc., and GRAIL, Inc. FTC Docket No. 9401. Retrieved from: https://www.ftc.gov/system/files/ftc_gov/pdf/d09401commissionfinalopinion.pdf.

  69. Illumina, Inc., v. FTC, No. 23-60167, slip op. (5th Cir. Dec. 15, 2023).

  70. The court explicitly treated as moot whether a structural approach based on Brown Shoe is still valid. Brown Shoe Co. v. U.S., 370 U.S. 294 (1962). The court did not opine on the validity of applying Brown Shoe because the Commission reached the same conclusion as it did under the ability-and-incentive analysis.

  71. Illumina, slip. op. at 16.

  72. Illumina, slip. op. at 19.

  73. Illumina, slip. op. at 30–31.

  74. The 2023 MGs follow the previous iterations by not discussing merger remedies. However, because the Agencies have been rejecting proffered settlements and are attempting to “litigate the fix” in court, this is a critical issue for analysis. For my recommended approach—which is like the approach that was recommended by the court in Illumina/Grail, see Salop & Sturiale (2024).

  75. Wilson Concurring Opinion. (2023). In the Matter of Illumina, Inc., and GRAIL, Inc. FTC Docket No. 9401. Retrieved from: https://www.ftc.gov/system/files/ftc_gov/pdf/d09401wilsonconcurringopinion.pdf.

  76. See Loftus (2023). Illumina to shed cancer-test maker Grail after antitrust battle. Wall Street Journal. Retrieved from: https://www.wsj.com/health/healthcare/illumina-to-divest-itself-of-cancer-test-maker-grail-3f74f1e8.

  77. This concern that a merger may prevent downward price effects can be confusing to merger analysts or courts because the standard hypothetical monopolist test that evaluates the profitability of a price increase is not applicable. The fact that a firm lacks the incentive to increase price is irrelevant when the competitive concern is that the merger (or other conduct) will prevent price decreases. Failing to appreciate this distinction is commonly called the Cellophane Fallacy. See, e.g., Salop (2000, pp. 194–197).

  78. Guideline 7 raises similar issues in highly concentrated oligopoly markets.

  79. To fix the idea, recall the critique of contestability, which showed that there would be no profitable entry by an equally efficient entrant that sells a homogenous product in a market with Bertrand competition if production involves constant marginal cost and non-zero fixed costs. See Weitzman (1983).

  80. 2023 MGs, § 2.6.

  81. For an interesting model of the impact of acquisitions of nascent competitors on entrenchment of monopoly power, see Denicolò & Polo (2021).

  82. 2023 MGs, § 2.6 (“The Agencies therefore seek to prevent those mergers that would entrench or extend a dominant position through exclusionary conduct, weakening competitive constraints, or otherwise harming the competitive process.” (italics added)).

  83. 2023 MGs, § 2.6.A. n.36.

  84. For example, Netscape was such a potentially disruptive force to the Microsoft Windows ecosystem. U.S. v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001).

  85. Ayres (1985).

  86. The market definition approach in American Express that defined a single 2-sided market for what might be characterized as (simultaneous) transaction platforms with network effects would not properly apply to all ecosystems. Ohio v. American Express Co., 138 S. Ct. 2274 (2018). An ecosystem is more than a simple platform for transactions between consumers and the products that they buy. The complements may interact with one another as well as with consumers. And a consumer may not use all of the products at the same time.

  87. This analysis is similar to the concerns of Guideline 9 in that concepts of ecosystems and platforms are somewhat related.

  88. U.S. v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001).

  89. This is analogous to the concept of “moats” that is discussed in Athey & Scott Morton (2022).

  90. These issues can be formalized in the context of the Dorfman & Steiner (1954) model, where investment replaces advertising and output is assumed to be a concave function of investment.

  91. U.S. v. General Dynamics Corp., 415 U.S. 486 (1974).

  92. See the discussion of the Spence-Dixit models in Section I above.

  93. This model will be discussed in detail in the efficiencies section below. The parties’ bargaining power is treated as an exogenous variable, whereby the relative bargaining power of the seller (and correspondingly the buyer) ranges between 0 and 100%. Real world negotiations typically are limited only to certain dimensions. In the model, the single negotiated dimension is price, and the level of output is determined by the minimum of quantity supplied versus demanded.

  94. The “arms race” scenario also is a type of “frog in the pot” scenario. In analyzing both cases, it is important to emphasize that it is only brainless frogs that get boiled. Frogs with brains work to jump out of the pot. See Fallows (2006). The boiled-frog myth: Stop the lying now! The Atlantic. Retrieved from: https://www.theatlantic.com/technology/archive/2006/09/the-boiled-frog-myth-stop-the-lying-now/7446/. Neither Agencies nor courts are brainless frogs.

  95. Under the 2010 HMGs, where the presumption is triggered only if the increase in the HHI is at least 200, that firm could acquire all 80 rivals one at a time without triggering the HHI structural presumption.

  96. Indeed, the HHI threshold would be breached after the firm increased its share to 42%. At that point, the post-merger HHI would equal 1822 (= 422 + 58) and the increase in the HHI would be 880 (= 2 × 20 × 22).

  97. 353 U.S. 586 (1957).

  98. Ohio v. American Express Co., 138 S. Ct. 2274 (2018). For one critical analysis (among numerous others) of the American Express opinion, see Salop et al. (2022).

  99. U.S. v. Sabre Corp., 452 F. Supp. 3d 97 (D. Del. 2020), vacated, No. 20–1767, 2020 WL 4915824 (3d Cir. July 20, 2020).

  100. That commentary also might make it clear that both a single firm and a merged firm that is composed of participants on both sides of a two-sided market can compete with a platform, but perhaps only to a limited extent. For example, an online bookstore might provide some competition to Amazon, and a taxi company can compete with Uber and Lyft. A real estate broker that has seller and/or buyer clients can provide some competition with a multiple listing service.

  101. 1982 MGs, § I n.5.

  102. 1992 HMGs, § 0.1.

  103. The analysis of buyer-side bargaining leverage also has advanced. See, e.g., Melamed & Salop (2024).

  104. The 2010 HGs made a less definitive statement: “Nor do the Agencies evaluate the competitive effects of mergers between competing buyers strictly, or even primarily, on the basis of effects in the downstream markets in which the merging firms sell” (italics added). 2010 HMGs, § 12.

  105. See Section III.C.

  106. Administrative Complaint. (2024). In the Matter of The Kroger Company and Albertsons Companies, Inc. FTC Docket No. 9428. Retrieved from: https://www.ftc.gov/system/files/ftc_gov/pdf/d9428_2310004krogeralbertsonsp3complaintpublic.pdf.

  107. See Gara (2014). Safeway buy-out? Take a trip down memory lane. Wall Street Journal. Retrieved from: https://www.wsj.com/articles/safeway-buy-out-take-a-trip-down-memory-lane-1394066963.

  108. “Common ownership” concerns involve firms that take actions that benefit its large investors that hold interests in rivals even if that harms the returns to its investors that lack such interests, and perhaps even without direct communication by the large investors. Acting in the private interest of large shareholders that own large shares of the acquiring firm at the expense of smaller shareholders also violates the firm’s fiduciary duty to those smaller shareholders.

  109. Rosch Concurring Statement. (2008). FTC v. Ovation Pharmaceuticals, Inc. FTC File No. 0810156. Retrieved from: https://www.ftc.gov/system/files/documents/public_statements/418091/081216ovationroschstmt.pdf.

  110. Chopra Dissenting Statement. (2019). In the Matter of Sycamore Partners II, L.P., Staples, Inc., and Essendant, Inc. FTC File No. 181-0180. Retrieved from: https://www.ftc.gov/system/files/documents/public_statements/1448335/181_0180_staples_essendant_chopra_statement_1-28-19_0.pdf.

  111. See, e.g., Scheffler et al. (2023); Conlow & Scott Morton (2023).

  112. Wright (2008). No ovation for FTC’s latest enforcement theory. Truth on the Market. Retrieved from: http://www.truthonthemarket.com/2008/12/17/no-ovation-for-ftcslatest-enforcement-theory/.

  113. Majority Statement. (2019). In the Matter of Sycamore Partners II, L.P., Staples, Inc., and Essendant, Inc. FTC File No. 181-0180. Retrieved from: https://www.ftc.gov/system/files/documents/public_statements/1448328/181_0180_staples_essendant_majority_statement_1-28-19.pdf.

  114. In the case of Indocin, it might be argued that there was no reduction in competition because Indocin had a monopoly. This characterization is fallacious because it ignores both the fact that even a monopolist faces competition from “outside” goods and the fact that the higher prices lead to lower output. If demand is perfectly inelastic up to some “limit price,” then there is no output reduction or effect on the prices of other firms. Thus, there is an argument that this usual situation be treated as “price gouging” rather than “lessening of competition.” However, even here there are wealth transfers from consumers, which is a primary concern of antitrust law in general.

  115. This is analogous to the case where a firm provides credible evidence that it would have incentives to become a “super-maverick” that lowers prices after acquiring a rival. That rebuttal would be valid.

  116. The scenario of an acquiring firm that plans to increase price based on its market research that indicates that its demand elasticity is lower than was estimated by the selling firm is more troubling because there is no offsetting benefit. In addition, it is easy enough to disguise the intent to signal rivals as a claimed belief about the low demand elasticity.

  117. The 2023 MGs deleted the provision from the 1997 and 2010 MGs that the Agencies in their prosecutorial discretion might count out-of-market efficiency benefits when they are “inextricably linked” to the merger and large, relative to the harms. It is not clear whether this is intended as a policy change or simply a drafting issue.

  118. U.S. v. General Dynamics Corp., 415 U.S. 486, 498 (1974).

  119. The FTC 3-1-1 decision in 2004 to permit the Genzyme’s acquisition of Novazyme might be such an exception. This acquisition involved a possible loss in innovation competition for an effective treatment for Pompe disease, a rare and often fatal disease affects a small number of infants and children. One factor that may have affected the Commission’s conclusion that the merger was unlikely to reduce innovation efforts was the fact that two children of Novazyme’s CEO, John Crowley, suffered from the disease and he was placed in charge of the program. Thus, he was unlikely to have approved a merger that would reduce R&D efforts. Muris Statement. (2004, January 13). In the Matter of Genzyme Corporation/Novazyme Pharmaceuticals, Inc. FTC File No. 021-0026, 15–16. Retrieved from: https://www.ftc.gov/system/files/attachments/press-releases/ftc-closes-its-investigation-genzyme-corporations-2001-acquisition-novazyme-pharmaceuticals-inc./murisgenzymestmt.pdf. Genzyme did develop a treatment that was approved by the FDA 2006 and improved in 2010 and 2021. In December 2023, the FTC sued to block Sanofi (the current owner of Genzyme) from acquiring an exclusive license on a possible product that was currently in development from Maze. Federal Trade Commission. (2023, December 11). FTC seeks to block Sanofi’s acquisition of rare disease drug that threatens Sanofi’s monopoly. Retrieved from: https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-seeks-block-sanofis-acquisition-rare-disease-drug-threatens-sanofis-monopoly.

  120. 2023 MGs, § 3.3.

  121. 2023 MGs, § 3.3 n.71.

  122. The monopoly outcome may involve more or less input purchases than the monopsony outcome, depending on the shapes of the demand and supply curves.

  123. Figure 3 illustrates the special case where the purchase levels at the two bargaining power extremes (i.e. Xm and Xu) are equal. However, this equality is not necessary or even generally the case.

  124. U.S. v. Anthem, Inc., 855 F.3d 345, 378 (D.C. Cir. 2017) (Kavanaugh, J., dissenting).

  125. Then-judge Kavanaugh alternatively may have been thinking in terms of the classical monopsony outcome—with lower output—occurring if the input supply curve is upward-sloping, versus but what he called the bargaining outcome—with higher output—occurring if the input supply curve is perfectly elastic. In a bargaining model with a perfectly elastic supply curve, there is no monopsony output reduction even if the buyer obtains dominant bargaining power. In this situation, allowing the buyer-side mergers to countervail seller-side bargaining power leads to a lower input price and higher levels of input purchases. With the higher input purchases, downstream output rises and consumers benefit from lower output prices. However, this is a very restrictive supply assumption, as the majority opinion emphasized.

  126. The medical services suppliers (e.g., hospitals or medical practices) in principle could have perfectly elastic supply curves in the very short-run. But supply is likely to be upward-sloping once quality and entry are  taken into account in the longer run. Thus, a policy that applauds buyer-side mergers that might lead to dominant bargaining power would be myopic. The lower input prices would tend to lead to lower-quality products and lower investment and capacity. Thus, downstream consumers may benefit in the very short-run but will be harmed by lower quality and higher prices in the longer run. This was stressed in Anthem/Cigna. 855 F.3d at 366–367. (“[P]urported efficiency claims based on lower prices can be undermined if they rest on reductions in product quality or variety that customers value.... [E]very dollar of medical cost savings realized by consumers will come at the expense of providers. It thus is quite plausible that paid less, the medical providers will provide less.”). 855 F.3d at 370. (“[If] decreased provider rates... lead to an inferior health care product, including reduced access to medical care and fewer doctors.... [P]aying less to get less is not an efficiency; it is evidence of the anticompetitive consequences of reducing competition and eliminating an innovative competitor in a highly concentrated market.”) (Millett, J., concurring).

  127. 2023 MGs, § 3.3.

  128. 2023 MGs, § 2.10. The 2010 HMGs make a similar, but weaker, point: “Nor do the Agencies evaluate the competitive effects of mergers between competing buyers strictly, or even primarily, on the basis of effects in the downstream markets in which the merging firms sell.” 2010 HMGs, § 12.

  129. For analysis of a limited antitrust exemption for small-market participants, see Salop (2023).

  130. National Collegiate Athletic Association v. Alston, 141 S. Ct. 2141 (2021).

  131. Hemphill & Rose (2018, p. 2105).

  132. While there are pros and cons with regard to how much detail to provide on rebuttals, I think it would have been useful to include this issue because it is a common rebuttal claim. And as discussed above, countervailing power raises some complexities for generalist courts.

  133. Looking just at the page count, these MGs are 50 pages. By comparison, the 2020 HMGs were 34 pages, yet did not cover potential entry acquisitions or vertical mergers. The 2020 VMGs were a very terse 14 pages. And these 2023 MGs contain several additional issues.

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Acknowledgements

Jonathan Baker, Dennis Carlton, Amita Chauhan, Daniel Francis, Richard Gilbert, Scott Hemphill, Herb Hovenkamp, Farrell Malone, A. Douglas Melamed, Carl Shapiro.

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    Steven C. Salop

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Salop, S.C. The 2023 Merger Guidelines: A Post-Chicago and Neo-Brandeisian Integration. Rev Ind Organ (2024). https://doi.org/10.1007/s11151-024-09959-9

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