Business and Industry

New Federal Merger Guidelines Hint: Maybe Just Don't Merge Anything at All

Plus: Authors demand compensation from A.I. systems, IRS whistleblowers speak out about Hunter Biden investigation, and more...


The Federal Trade Commission (FTC) and the Department of Justice (DOJ) yesterday released new draft guidelines for mergers and acquisitions. The proposed rules would govern how the two agencies tasked with antitrust law enforcement evaluate whether to allow or block corporate merging and acquiring. The release of the draft guidelines marks the beginning of a 60-day public comment period.

The 13 new guidelines were designed to "reflect the realities of how firms do business in the modern economy," said FTC Chair Lina Khan.

But critics suggest they could be used to justify blocking virtually any merger. They could also deter merger and acquisition attempts without even requiring specific action, since companies looking at these guidelines might simply surmise that their plans stand no chance.

"The overbroad guidelines are clearly designed to deter merger activity as a whole, regardless of the risk posed to competition," said Geoffrey Manne, president of the International Center for Law & Economics (ICLE).

A Broad New Framework for Thwarting Mergers

The draft guidelines include 13 key principles that the FTC and DOJ can use to determine if a merger is unlawfully anticompetitive. They include vast directives such as "mergers should not eliminate substantial competition between firms," mergers "should not entrench or extend a dominant position," mergers "should not further a trend toward concentration," and mergers should "not otherwise substantially lessen competition."

Of course, any merger might be said to lessen competition or increase concentration in some capacity. And any merger or acquisition involving a big company could be said to "entrench or extend" that company's position.

Perhaps modifying words like "substantial" will do a lot of work here. But given what we know about Biden-era antitrust enforcement and attempts to block mergers, it's more likely that these directives will be interpreted in the broadest way possible.

One of the 13 principles says "mergers should not eliminate a potential entrant in a concentrated market." This plank could be used in attempts to stop any company that could theoretically make its own version of a technology or service from buying a company that already operates an existing version of that tech tool or service.

This was the novel argument the FTC attempted in its failed bid to stop Meta from acquiring virtual reality (V.R.) fitness app maker Within Unlimited. The FTC argued that Meta should have to make its own, additional V.R. fitness app, thus adding another option to the V.R. fitness app market. Meta buying Within Unlimited and its existing app would illegally deprive the market of competition, the FTC argued—though a federal court disagreed.

The weird Meta/Within Unlimited case highlights the impossible position big firms face from current antitrust enforcers. When these companies develop new products of their own that compete with smaller rivals, they are accused of acting nefariously to entrench their dominant position and, yes, thwart competition. Yet when they don't make their own version, they're accused of thwarting competition. Basically, a Big Tech firm that wants to expand by any means will find itself running afoul of Khan's FTC.

A Chilling Effect

The last time the FTC and DOJ revised vertical merger guidelines was in 2020, but those guidelines have since been withdrawn. The last time the agencies revised horizontal merger guidelines was in 2010.

While a departure from prior federal guidelines in many ways, the new draft guidelines are entirely in keeping with the Biden administration's "Neo-Brandeisian" slant. By taking an extremely broad view of reasons to prevent mergers and acquisitions, the FTC and DOJ can justify a desire to stop any business from getting bigger and thwart any business that's already big.

FTC and DOJ merger guidelines are not binding in court decisions, thank goodness. And so far courts have not been terribly persuaded by the Biden administration's efforts to stop mergers and acquisitions. But federal merger guidelines can subtly influence court decisions or normalize new frameworks.

Perhaps the biggest impact of the guidelines, however, would be the chilling effect. The draft guidelines signal to any company thinking of a merger or acquisition that it's going to be a huge hassle to get it approved and that the FTC and DOJ have a broad directive to intervene. This could stop businesses from even attempting mergers—and deprive consumers of deals that could lower prices or increase innovation.

"While there is a lot to digest in the 51 page document with over 100 (largely stale) footnotes, the broad picture is clear: the goal of this document is to stop more mergers. Period," writes Brian Albrecht, ICLE chief economist, at the Truth on the Market blog. "To achieve that end, the guidelines have jettisoned the insights from economics that antitrust has learned over the past 60 years and moved back to a world where virtually all conduct is presumed to be anticompetitive."

Against Consumer Welfare

The draft merger guidelines "make a clear shift away from the long-standing legal precedent and policy principle of prioritizing consumer welfare," notes Albrecht:

For example, the merger guidelines would lower the Herfindahl-Hirschman Index (HHI) thresholds, thereby classifying a larger number of markets as concentrated or highly-concentrated.

A mere 50 years of economics tell us to be very skeptical of the importance of concentration as a measure of competition. So, why lower the thresholds? No economic argument or evidence is given. It's simply lowered to stop more mergers.

More importantly than the specific HHI threshold, the new guidelines flip their role in antitrust analysis. Recognizing the concentration measures don't prove anything anticompetitive, the 2010 merger guidelines explained that HHI thresholds "provide one way to identify some mergers unlikely to raise competitive concerns." In other words, if you want to merge but the market is not concentrated, don't worry about the FTC or DOJ blocking you.

In contrast, the new proposed guidelines flip this framing and burden of proof from innocent until proven guilty, to guilty until proven innocent. Now, it is not that low HHI means the merger is unlikely to raise competitive concerns. Rather, under the new guidelines an HHI over the threshold creates "structural presumption" against the merger. Underscoring the significance of this change, the permissible consumer welfare defenses in the face of a structural presumption basically don't exist.

Albrecht writes that he is particularly troubled by the draft guidance on vertical mergers.

No one would claim vertical mergers cannot be anticompetitive, but law and the economics literature has long held they are different from horizontal mergers.  The guidelines don't do away with the distinction between the two, but they try to chip away at the difference, including by introducing a new structural presumption against vertical mergers.

The guidelines introduce the idea of a "foreclosure share." That is, if the merged firm "could foreclose rival's access," then the guidelines assume they will. There is no need to show an incentive to foreclose. Again, no anticompetitive outcomes need to be predicted, no future harm to consumers needs to be shown.

Moreover, if the foreclosure share (aka market share, since no incentive to foreclose must be shown) is more than 50%, "that factor alone is a sufficient basis to conclude that the effect of the merger may be to substantially lessen competition." Color me skeptical that there is a solid economic argument that is the case.

To see why this is extreme, imagine an input seller with 50% of the market acquiring a downstream firm with 1% of the downstream market. By the agency's definitions this would substantially lessen competition, since 50% is the "share of the related market that is controlled by the merged firm." In what economic sense does this merger change who controls what inputs? They claim there is possible rebuttal evidence, but none mentioned in Section IV of the guidelines would actually apply. Instead, again, they cite to Brown Shoe Co. v. United States (1962) as conclusory evidence.

Lazar Radic, an adjunct law professor at IE Law School, notes that the draft guidelines also set up a world in which no platform operator "can simultaneously operate and participate on a platform." (I.e., Amazon selling its own Amazon-brand products on the Amazon platform.)

"This de-facto prohibits vertical integration in platforms of a certain size, destroying the incentive to build & develop those platforms, and forfeiting the massive consumer benefits that accrue from vertical integration," he points out. "The combined effect of the new merger guidelines, the FTC's crusade against 'self-preferencing,' and bills like [the American Innovation and Choice Online Act], would be no Amazon Basics, no FBA (and probably no Prime)—heck, probably no Marketplace bc Amazon might just decide to kick all third party sellers out. Why would the FTC, an agency tasked with protecting consumers and competition, want to do this? Bc under its neo-brandeisian leadership, the FTC has reframed that mission with the goal of undermining 'bigness'- consequences and statutes be damned."


Writers demand artificial intelligence (A.I.) stop learning from their work. Today in petulant outbursts from the rich and famous: A group of blockbuster authors is asking tech companies to either stop using their books to train A.I. systems or to pay them for this service. Signatories to the letter—published by the Author's Guild—include Dan Brown, James Patterson, Margaret Atwood, and Jonathan Franzen, along with thousands of lesser-known writers. The letter is addressed to OpenAI, Microsoft, Meta, Alphabet, and other tech companies.

A.I. systems need vast quantities of information in order to learn. But it's unclear to what extent this includes copyrighted books. (ChatGPT is trained on "licensed content, publicly available content, and content created by human AI trainers and users," said maker OpenAI.) And the Author's Guild offers no specific or particular proof of piracy, just vague allegations that it is somehow being stiffed.

"Millions of copyrighted books, articles, essays, and poetry provide the 'food' for AI systems, endless meals for which there has been no bill," states the letter. "You're spending billions of dollars to develop AI technology. It is only fair that you compensate us for using our writings, without which AI would be banal and extremely limited."

So long as these systems aren't making copyrighted work publicly available without a right to do so, it's hard to see the authors' demands here as anything more than sour grapes. The whole thing smacks of demands that social media companies pay users for their data (something that's collectively worth a lot but individually worth a pittance) or pay media organizations to link to them (an arrangement that benefits news organizations arguably more than it does the tech companies). Everyone sees these companies as cash cows and is angling for their own way to get in on the action, whether or not it's actually fair and/or stifles innovation.

The Author's Guild letter is part of a larger set of demands. "Last month, Authors Guild CEO Mary Rasenberger and Director of Advocacy and Policy Umair Kazi, together with our DC lobbyist Marla Grossman and her staff, met with the offices of key lawmakers—including senators Chuck Schumer, Chris Coons, Amy Klobuchar, and Martin Heinrich—to address critical issues concerning generative AI and protective measures for writers," notes the Guild. "The issues addressed were collective licensing and copyright protection, an antitrust exemption, and AI-labeling and transparency requirements."


IRS whistleblowers testify about Hunter Biden investigation. "Two whistleblowers provided Congress with their side of the story from the yearslong investigation into Hunter Biden," notes USA Today:

Speaking to leaders of three powerful House committees, who held a joint hearing Wednesday, Internal Revenue Service employees Greg Shapley and Joseph Ziegler − who was previously known as "whistleblower x" − alleged U.S. Justice Department officials slow walked the investigation into President Joe Biden's youngest son.

"It appeared to me, based on what I experienced, that the U.S. attorney in Delaware in our investigation was constantly hamstrung, limited and marginalized by (Justice Department) officials as well as other U.S. attorneys," Ziegler said.

This marks the first public testimony from the two IRS agents who were assigned to the case, which focused on tax and gun charges against Hunter Biden, who ultimately agreed to plead guilty to two misdemeanor counts of tax evasion and participate in a pretrial program in June.

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