Monday, June 11, 2007
Posted by D. Daniel Sokol
In what I think is the most important paper on mergers so far this year, Jonathan Baker of American University and Carl Shapiro of Berkeley describe the shift in merger enforcement and argue for a reinvigorated merger enforcement in the United States. The paper is titled Reinvigorating Horizontal Merger Enforcement.
ABSTRACT: The past forty years have witnessed a remarkable transformation in horizontal merger enforcement in the United States. With no change in the underlying statute, the Clayton Act, the weight given to market concentration by the federal courts and by the federal antitrust agencies has declined dramatically. Instead, increasing weight has been given to three arguments often made by merging firms in their defense: entry, expansion and efficiencies. We document this shift and provide examples where courts have approved highly concentrating mergers based on limited evidence of entry and expansion. We show using merger enforcement data and a survey we conducted of merger practitioners that the decline in antitrust enforcement is ongoing, especially at the current Justice Department. We then argue in favor of reinvigorating horizontal merger enforcement by partially restoring the structural presumption and by requiring strong evidence to overcome the government's prima facie case. We propose several routes by which the government can establish its prima facie case, distinguishing between cases involving coordinated vs. unilateral anti-competitive effects.