Sept. 18, 2023

Federal Trade Commission
600 Pennsylvania Ave. NW
Washington, D.C. 20580

U.S. Department of Justice
950 Pennsylvania Ave. NW
Washington, D.C. 20530

Re: FTC-2023-0043-0001—Draft Merger Guidelines for Public Comment

Dear Assistant Attorney General Kanter and Chair Khan,

On behalf of the R Street Institute’s Technology and Innovation Policy team, I appreciate the opportunity to comment on the new proposed Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) merger guidelines.[1] In our comments on last year’s Request for Information on merger guidelines, we offered comments expressing hope that the antitrust enforcement agencies would hold to sound economic analysis and consider the threats to innovation and consumer welfare that could ensue from an overly aggressive approach to merger challenges, particularly in the tech industry.[2]

Unfortunately, the 13 new guidelines proposed in this draft willfully disregard decades of economic analysis and court precedents, representing a shift away from an enforcement standard based on the welfare of consumers toward a more European-style precautionary antitrust approach focused on the welfare of competitors. We would like to offer a few comments on why these merger guidelines, as proposed, will likely prove ineffective as guidance for merger activity and harmful to economic growth and innovation.

I. The Proposed Guidelines Are Not Useful to Anyone but the Enforcers

The merger guidelines previously offered by the FTC and DOJ were intended to serve as useful guidance to both courts and corporations with respect to how the antitrust laws would apply to merger review and challenges. These new proposed guidelines, especially in context with other actions taken by the FTC and DOJ in recent years, seem to aim instead at discouraging merger activity across the board.[3]

Instead of laying rational groundwork for how merger compliance should work under current antitrust law, the draft guidelines establish a radically new and broad set of assumptions for which mergers and acquisitions may be subject to legal challenge.[4] For example, the first proposed guideline states that “mergers should not significantly increase concentration in highly concentrated markets.” The bar for this determination is set so low that a firm with as little as 30 percent share of a given market could be deemed guilty of violating antitrust laws for almost any merger or acquisition.[5] 

Additionally, in many cases, the guidelines do not differentiate between horizontal and non-horizontal mergers. Horizontal mergers—those between direct rivals in a given market—have traditionally received a higher degree of scrutiny because decreasing the total number of rival firms in a market obviously increases concentration. On the other hand, vertical mergers have generally been recognized as posing fewer risks to consumers and competition and frequently lead to beneficial market efficiencies.[6] However, under Guideline 7, which states that “mergers should not entrench or extend a dominant position,” practically any merger or acquisition by a sufficiently large firm could be deemed illegal.[7] 

The excessive broadness of what transactions could be deemed illegal under these proposed guidelines has led experts both for and against broadening antitrust enforcement to note that the guidelines, as drafted, are unlikely to be useful as instructions for either companies or the judiciary.[8] As decorated antitrust scholar Herbert Hovenkamp noted in a comment that otherwise generally supported the draft guidelines, “[They] emphasize the anticompetitive potential of certain types of transactions but state little about when actions will be approved. Good guidance should instruct business managers about what they can as well as what they cannot do under the law.”[9]

II. The Proposed Merger Guidelines Threaten Due Process of Law

Antitrust has always existed at the awkward confluence of economic regulation and law enforcement.[10] Yet, although the function of the antitrust laws is to broadly regulate or proscribe certain categories of economic activity, their actual enforcement is a judicial proceeding subject to basic legal assumptions like due process, the presumption of innocence of the accused, and the need to prove that some specific harm or violation has occurred or likely will occur. 

One reason the prevailing consumer welfare framework for antitrust proved persuasive after decades of seemingly arbitrary enforcement was that it provided something closer to an objective standard by means of a need to demonstrate real or likely economic harms to consumers.[11] In contrast, progressive antitrust expansionists espouse a dogmatic concern about excessive firm size and market concentration as harmful unto themselves.[12]

Instead of a consumer welfare standard of harm, self-proclaimed “Neo-Brandeisian” antitrust reformers propose a standard that protects competitor welfare, or “the competitive process.”[13] The result of this logic is clearly represented in these new proposed guidelines, which greatly reduce the market concentration thresholds at which a merger may be presumed potentially worthy of antitrust investigation. Beyond that, the guidelines incorporate assumptions about potential harms to competition that would render any acquiring firm above a given size presumptively guilty of anticompetitive activity merely because the acquisition would benefit them.[14]

These presumptions of harm further tilt the burden of proof such that a far greater number of mergers and acquisitions than before will be effectively viewed as guilty of violating antitrust laws until proven innocent. Aside from the economic costs that will result from stifling economic transactions that may benefit consumers and economic efficiency, this burden shifting violates the basic common law principles that an accused party stands innocent until proven guilty and that private parties have a basic freedom to dispose of their property as they see fit.[15] Disregarding economic analysis relating to efficiencies and consumer benefits of mergers, of course, further tilts the field against the accused firms.

III. Disregarding Economic Analysis Will Harm Innovation

This disregard for economic analysis in favor of a presumption that “big is bad” has negative repercussions for many sectors of the economy, but perhaps none more so than digital technology firms. This is because the interconnectedness facilitated by the internet has allowed firms to create products that benefit at levels never before seen from economies of scale. Online advertisement, social media, search engines and many other internet products become more useful and efficient as they attract more and more users. This has allowed some of the most successful and innovative technology firms to develop into some of the largest, most valuable companies in history. 

On the other hand, this ease of connecting users also results in tremendous volatility and competition. One recent example is Zoom’s success in dominating all of the Big Tech firms in videoconferencing software; another is OpenAI’s ability to compete with large incumbent firms like Google and Meta in generative AI software even before partnering with Microsoft. [16] 

However, the most efficient way for many new entrants into the digital economy to scale up and make an innovative product profitable is to be acquired by an existing platform.[17] Consequently, discouraging mergers by large incumbent firms in the way these guidelines indicate poses an immediate risk of disincentivizing venture capital investment into tech and other startup firms.[18] 

IV. Antitrust Enforcers Are Inefficient at Predicting the Future of Innovation

Untethering merger enforcement from a more economics-driven, consumer-centric framework greatly increases the degree to which the enforcement agencies can rely on arguments of potential future harms to competition. Forecasting has always been part of antitrust enforcement, and the Clayton Act licenses the government to preclude some activities whose effect “may be substantially to lessen competition.”[19] However, the consumer welfare standard has rationally incorporated error-cost analysis into the calculation of what hypothetical future harms are worth intervening in the market to prevent.[20] 

Dynamic markets like emerging technologies are particularly difficult to predict, as creative destruction disrupts incumbents in ways that are often impossible to anticipate, even for experts. Antitrust enforcers have proven repeatedly over the past several decades that their ability to judge future competition in innovation is poor at best.[21] A precautionary approach based on a dogmatic fear of market concentration will likely lead to a greater risk of harm to consumers and innovation.

These draft merger guidelines ultimately have no force of law, and they serve as more of a manifesto against market concentration than useful guidance for courts or corporations. Continued efforts to block mergers under this expansive interpretation of antitrust law will likely produce the same result we have seen over the past several years—expensive, wasteful litigation that adds to a growing losing streak for the FTC.

Respectfully submitted,

Josh Withrow
Fellow, Technology and Innovation

R Street Institute
1212 New York Ave. NW
Suite 90
0Washington, D.C. 20005
[email protected] 

Read the official regulatory comments here.

[1] “Draft Merger Guidelines for Public Comment,” U.S. Department of Justice and Federal Trade Commission, Docket No. FTC-2023-0043-0001, July 19, 2023.

[2] Josh Withrow, “R Street Outlines Concerns with Potential Updates to FTC, DOJ Merger Guidelines,” R Street Institute, March 21, 2022.

[3] Luke M. Froeb et al., “Cost-Benefit Analysis Without the Benefits or Analysis: How Not to Draft Merger Guidelines,” Southern California Law Review (forthcoming), last accessed Sept. 12, 2023. id=4537425

[4] “Draft Merger Guidelines for Public Comment.”

[5] Brian Albrecht, “New Merger Guidelines Are As Expected. That’s Not a Compliment,” Truth on the Market, July 19, 2023.

[6] Geoffrey A. Manne et al., “The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration,” Kansas Law Review 68:5 (2020), pp. 923-973.

[7] “Draft Merger Guidelines for Public Comment.”

[8] Gus Hurwitz and Geoffrey Manne, “Antitrust Regulation by Intimidation,” The Wall Street Journal, July 24, 2023.

[9] Herbert Hovenkamp, “The 2023 Draft Merger Guidelines: a Review,” Sept. 8, 2023.

[10] See, e.g. Fred S. McChesney, “Be True to Your School: Chicago’s Contradictory Views of Antitrust and Regulation,” The Causes and Consequences of Antitrust: The Public-Choice Perspective (University of Chicago Press, 1995), pp. 323-340.

[11] Wayne T. Brough, “Antitrust 2022: Past is Prologue,” R Street Policy Study No. 249, January 2022.

[12] See, e.g., Lina M. Khan, “The Ideological Roots of America’s Market Power Problem,” The Yale Law Journal Forum 127 (June 2018), pp. 960-979. hxxcykpx.pdf.

[13] Tim Wu, “After Consumer Welfare, Now What? The ‘Protection of Competition’ Standard in Practice,” Competition Policy International (2018). scholarship

[14] Brian Albrecht, “Competition Increases Concentration,” Truth on the Market, Aug. 16, 2023.

[15] See, e.g., Ben Sperry, “The Dangerous Implications of Changing Antitrust Presumptions,” Truth on the Market, Oct. 27, 2020.; Josh Withrow, “The Burden of Proof for Increased Merger Enforcement Should Fall Upon the Government,” National Taxpayers Union Foundation, Nov. 3, 2021.

[16] Lionel Sujay Vailshery, “Global market share of videoconferencing software 2022, by program,” Statista, Oct. 12, 2022.; Andrew R. Chow, “How ChatGPT Managed to Grow Faster Than TikTok or Instagram,” Time, Feb. 8, 2023.

[17] “Exits, Investment, and the Startup Experience: The role of acquisitions in the startup ecosystem,” Engine and Startup Genome, Oct. 24, 2022.

[18] Devin Reilly et al., “The Importance of Exit via Acquisition to Venture Capital, Entrepreneurship, and Innovation,” Minnesota Journal of International Law 32:1 (Feb. 7, 2023), pp. 159-193.

[19] 15 U.S.C. § 12, Cornell Law School Legal Information Institute, last accessed Sept. 14, 2023.

[20] Geoffrey Manne, “Error Costs in Digital Markets,” Global Antitrust Institute, Nov. 19, 2020.

[21] See, e.g., Ryan Bourne, “Is This Time Different? Schumpeter, the Tech Giants, and Monopoly Fatalism,” Cato Institute, June 17, 2019.; Josh Withrow, “Antitrust ‘Precrime:’ What Regulators Can’t Know Will Hurt You,” National Taxpayers Union Foundation, April 21, 2021.