Washington, D.C. – The comments of the Consumer Federation of America (CFA) on the Proposed 2023 Merger Guidelines^[1] present an evaluation of the proposal and a lengthy analysis of the failure of the antitrust and competition authorities in the U.S. to protect consumers from the abuse of market power in an economy that is increasingly dominated by tight oligopolies on steroids.^[2]  The comments argue that, in light of the overwhelming evidence of the failure of lax antitrust enforcement and weak competition policy, the 2023 Revisions are a clear and strong step in the right direction.

The paper describes a comprehensive framework for evaluating competition policy, which has been previously published by CFA.^[3]   The framework is based on the works of Louis Brandeis, Joseph Stiglitz and the structure-conduct-performance paradigm that produced the uniquely successful American political economy of the quarter century after World War II.

The paper adds a contemporary updating of that framework by Neo-Brandeisians (Tim Wu and Lina Kahn).  It shows that the 2023 Revision is a return to traditional values in antitrust, values that seek to ensure that the 21^st-century economy returns to the path of competition that produced the remarkable success of the past.

The paper reviews the clear evidence of the failure of lax antitrust and weak competition policy under a 40-reign of ill-considered precedent driven by a misguided economic theory of market fundamentalism that dominated the period from the first revision of the Merger Guidelines in 1982.  The analysis of that failure is described in three chapters that cover three different, but harmful merger waves.

• Mergers in “traditional” sectors that led to excessive concentration in hospitals, airlines, railroads, retail, and the economy in general.
• Mergers that squelched competition in communications, including Business Data Service on which many businesses have come to rely in the digital economy, Broadband Access Service, Wireless, and Cable services.
• The tsunami of mergers involving Big Data Platforms (Google, Amazon, Facebook, and Apple) has resulted in dominant firms abusing bundles of services that lock consumers in and competitors out.

The important changes in the 2023 Revisions to the Merger Guidelines respond to this long record of inadequate antitrust enforcement in two primary ways.

First, with respect to traditional horizontal mergers, where merging firms are in direct, head-to-head competition,

• The guidelines return to the pre-2010 thresholds on mergers that raise anticompetitive concern (Guidelines 1, 2, and 3).
• The Guidelines emphasize the risk of coordination (Guideline 3) and the importance of potential competition (Guideline 4)
• There is a strong indication that the agencies will, in fact, be stricter about the impact of mergers. The 2023 Revisions use stronger and very traditional language throughout the Revision in describing the procompetitive purpose of merger review, particularly in how “relevant markets” will be defined for purposes of merger review (Section II).
• The 2023 Revisions also go to great lengths to identify the heavy burden that the merging parties will bear in bringing forward excuses and explanations, like efficiency gains, to rebut the obvious negative impact of an increase in concentration that the merger creates. The agencies will be appropriately skeptical of these rebuttable presumptions.  (Section III on rebuttable presumptions)

Here it is important to keep in mind that this Guideline merely triggers scrutiny.  Every merger that is scrutinized, however, is not challenged.  Most challenges involve mergers that involve much higher levels of concentration.  Hopefully, the antitrust authorities will take their own Guidelines more seriously.

Second, and of equal, if not greater, importance, the Guidelines take on the unique challenge that excessive concentration and abuse of monopoly power that the new, digital economy poses.  Critics of lax enforcement have raised many of these concerns in the past.

• The Revision directly addresses vertical and conglomerate mergers where bundles create a barrier to entry for competitors or exit for consumers (Guidelines 5, 6 and 7).
• They explicitly raise concerns about multisided platforms and monopsony (buyer market power) (Guidelines 10 and 11).
• They encourage the agencies to address trends, insisting that they should no longer be blinded by that failure to “see the forest for the trees: (Guideline 8, 9).

The Guidelines make it clear that the antitrust authorities will not allow the merger wave that has swept the Big Data Platforms into dominance to continue.  They could do not less.  However, the Guidelines are also an indicator of how the agencies will attempt to reverse past mistakes.

• They recognize the new sources of market power in vertical and conglomerate mergers that have thrived on the bundling around a core of “must have” services that have enabled each Big Data Platform to achieve dominance in their specialized area.
• They also note that the key to that dominance has not been the simple “economics” of digital platforms, it has relied on anticompetitive conduct that has raised switching costs, locking consumers in and competitors out.

It has been clear for over two decades that it is plain old anti-competitive practices that are the glue that holds the dominance together.  As we concluded in response to the first major antitrust case of the digital age, the complaint against Microsoft^[4]:

Because the nature of the industry was not sufficient to entrench its monopoly, Microsoft resorted to repeated, well-documented and protracted campaigns of anti-competitive behaviors to squash its competition… foreclosing the market to competing products… making sure that the dominant browser was explorer, not Navigator… Microsoft should never have threatened to or actually withheld access to interfaces or jolted non-Microsoft products… Microsoft illegally eliminated competition to defend and extend its monopoly and imposed a heavy price on the public.  Consequently, the application of traditional antitrust rules will achieve exactly the reverse of what Microsoft claimed it would – it will promote innovation by allowing potential competitors, who would otherwise be quickly eliminated by the giant’s anti-competitive behaviors, to have a fair chance to enter and eventually discipline the price and quality of Microsoft’s products^[5]

Unfortunately, this 20-year-old precedent was never taken up by the courts or the antitrust authorities who took an extremely pro-business approach and put antitrust enforcement into a “deep freeze.”^[6]  This citation underscores the fact that the proposed Guidelines support every one of their recommended changes with a citation to prior cases. Almost all of these citations antedate the virtual administrative repeal of the antitrust laws by the courts in the last 40 years.  In this sense, the proposed 2023 Revisions of the Merger Guidelines are well within the tradition of antitrust enforcement and a return to the successful model competition on which the success of the American economy was built.

Beyond the technicalities of the proposed Revision of the Guidelines, the comments offer practical advice for enforcement based on the extensive review of the merger waves of the past 40 years.

• Complexity is an inevitable part of the analysis, so clear indications of how key issues, like rebuttable presumptions, will be viewed is called for and helps clarify the process.
• Anti-competitive practices have always been the core concern of procompetitive antitrust. They are more, not less, important in dynamic digital industries.
• Diversity of impacts, by location and consumer characteristics is important. Significant numbers of captives should be protected.
• The standard for how big an impact is a concern must be adjusted to reflect the harm that important groups may suffer, i.e., the average price increase is less important than the price increases for specific subgroups.
• The problem of lock in and switching costs, defined by geography in traditional industries and bundling in digital industries deserves a great deal of attention.
• Recognizing behavioral economics and its implications for manipulation and exploitation of consumers, antitrust and competition authorities must rethink their assumptions about the market. They need to build in greater protective mechanisms for consumers. This does not mean abandoning consumer sovereignty; it means insisting on stronger structures to support consumer sovereignty.
• Potential, nascent, and possible competition is critically important in digital industries. The job and burden of antitrust is not to predict future competition, but to identify and protect the possibilities for competition.
• Innovation that is transformative, not incremental, deserves much greater attention, even though it is difficult to predict. Buying up nascent competition that is innovative should be of great concern.
• Premature deregulation – the assumption the potential competitors can overcome the advantage of incumbents is mistaken. Antitrust and competition authorities should lean the other way, valuing and promoting competition, at the expense of the incumbents.
• Procompetitive, pre-emptive regulation – regulation that strives to increase the possibility of competition – is preferable.
• Recognize the importance and need for dual jurisdiction.
• Recognize that severe market failure is a key aspect of digital communications and build systems that give experts the flexibility and power to restore the balance between benefits and costs.
• Simplistic extremes like utility-style regulation or no regulation are not the answer.

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[1] U.S. Department of Justice and Federal Trade Commission, 2023, Merger Guidelines, Draft of Public Comment, July 19.

[2] The tight oligopoly in communications involves high concentration, multimarket contact, technological specialization, and product segmentation, while the steroid involves their history and grounding in geographic franchise monopolies.  The tight oligopoly in the case of Big Data Platforms, involves high concentration, multimarket contact, technological specialization, and product segmentation, while the steroids are the bundle of services that they offer which are wrapped around a “must have” core.

[3] July 12, 2022: Rebooting and Recalibrating Competition Policy

September 14, 2020: Big Data Platforms, a New Chokepoint in the Digital Communications Sector

September 3, 2020: Business Data Services

August 26, 2020: Pragmatic, Progressive Capitalism At Its Best: Network Neutrality

August 13, 2020: Pragmatic, Progressive Capitalism

[4] The Guidelines invoke this case in precisely this way (Guideline 7) in connection with the entrenchment of a dominant position with anti-competitive tactics, United States v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001) (en banc) (per curiam) (“[I]t would be inimical to the purpose of the Sherman Act to allow monopolists free reign to squash nascent, albeit unproven, competitors at will[.]”)

[5] Antitrust As Consumer Protection in The New Economy: Lessons from The Microsoft Case, Hastings Law Journal, 52: 4, April 2001, first presented at Conference on Antitrust Law in the 21st Century Hasting Law School, February 10, 2000

[6] Tim Wu, The Curse of Bigness, p.