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Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Saturday, December 31, 2011

Maytag/Whirlpool Merger Ends Up Pro-Competitive - How Do We Know? They Are Using Trade Law to Limit Competition

Posted by D. Daniel Sokol

Maytag/Whirlpool was the rallying cry for "under-enforcement" of mergers under the Bush administration (see for example here but see here for practitioner survey evidence that suggests that some limits to the narrative). Today's WSJ reports that Whirlpool is using the trade laws to claim "injury" from cheap imports (the second time this year)-- the same Korean imports that were critical to DOJ allowing the merger to proceed because imports disciplined price in "white" appliances.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/12/maytagwhirlpool-merger-ends-up-pro-competitive-how-do-we-know-they-are-using-trade-law-to-limit-comp.html

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Comments

I have a methodological question prompted by this post. Suppose hypothetical firm W has three rivals: firms M, L and S. The market price is 100, and a hypothetical WMLS monopolist would charge 120. Firms M and W merge. Several years later, the merged firm MW seeks to exclude the remaining rivals L and S. Does this new information discriminate between the following two theories: (1) MW raised price to 110 after the merger, and MW now seeks to exclude L and S in order to raise price further, to 120; and (2) competition from L and S prevented MW from raising price above 100 after the merger, and MW now seeks to exclude L and S in order to raise price to 120?

Posted by: Jon Baker | Jan 1, 2012 7:25:23 PM

Fair point and agreed on your two hypotheticals as alternative explanations. Hypothetical three is that the merged company is addressing competition from the foreign firms at 90 rather than at 110 and uses trade laws as a protectionist measure to get back to 110 or even 120. This reminds me of the article that Sykes had in the early 1990s that advocated replacing antidumping with antitrust.

Posted by: D. Daniel Sokol | Jan 2, 2012 11:26:36 AM

In the real world case, MW and its economists argued that they could not raise price BECAUSE of competition from L and S. Now, MW is attempting to exclude L and S from the market. Isn't this the real point?

For the anti-dumping case to be anticompetitive exclusion (whether or not it is exempt from antitrust challenge), it does not seem to matter whether or not MW raised price after the merger (e.g., to 110).

As for Jon's two hypotheticals, Ashenfelter et al have an empirical article that shows that MW did raise price (to 108, for some appliances, as I recall)in the real world.

Posted by: steve salop | Jan 2, 2012 2:54:29 PM

Yes - the parties argued (as did DOJ) that the foreign entry is what would discipline price - even with the merged firm have 2/3 market share:
Press Release, Dep’t of Justice Antitrust Div., Statement on the Closing of Its Investigation of Whirlpool’s Acquisition of Maytag, 06-187 (Mar. 29, 2006), available at http://www.usdoj.gov/atr/public/press_releases/2006/215326.htm.
25 Elizabeth Armington, Eric Emch & Ken Heyer, The Year in Review: Economics at the Antitrust Division, 2005–2006, 29 REV. INDUST. ORG. 305, 312 (2006)

You made me think about a broader question. I don't remember ever seeing some sort of merger conditionally approved where the merging parties agree not to use trade law for some period of time post consummation of the merger. Has this ever been the practice at either of the agencies? If it has not been policy of the agencies, perhaps it should be.

Posted by: D. Daniel Sokol | Jan 2, 2012 4:45:01 PM

I would take Danny's point this way: Should enforcers discount future
competition from foreign firms based on the possibility that the merged
firm will use the trade laws in the future to exclude these firms (or
force them to raise their prices)? Such use is somewhat predictable.
Given that the antidumping laws use a different test for below cost
pricing than the antitrust laws do for predatory pricing, combining an
antidumping suit with the increased market power from the merger might
allow the merged firm to exclude more efficient rivals and raise prices
in the future. Perhaps such suits are not all that likely; but, in a
very close case (like Whirlpool/Maytag) maybe it should help tip the
enforcement balance.

This argument seems plausible to me, but I take the report in the WSJ to
be a bit ambiguous on the facts of this case. The story reports that
Samsung and LG now have about 13% of the market, up from zero in 2001.
I take this to mean that their market share has grown both before and
after the merger and that it has taken a number of years for Whirlpool
to file an antidumping suit. So maybe not so predictable in this case.

I like Danny's basic idea of forbidding the parties from filing antidumping suits for some period--another "behavioral remedy"--but there are so many ways for antidumping cases to get filed (it doesn't have to be the merging parties who do it)--that I'm not sure how effective a remedy this would be.

Posted by: Harry First | Jan 3, 2012 1:53:44 PM

A merger which create monopoly in the market is not in the best interest of the consumer

Posted by: Hanusteffy | Jan 17, 2012 11:46:27 PM

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