Merger Acquisition Newsroom

Merger And Acquistions Enforcement Policy in the '90s

Merger enforcement experienced an upturn beginning in the late '80s. More horizontal mergers were challenged, and the Commission renewed enforcement efforts on vertical and potential competition theories. What accounts for this change of events? A continuing merger wave is one answer. There was a sharp upswing in mergers in 1987 and continuing through 1990, and another one beginning in 1993 and continuing today. With more transactions, one expects to find more that are problematic.

Interestingly, the change is not due to a dramatic policy reversal. The Commission and the Department of Justice jointly issued new horizontal merger guidelines in 1992, but the fundamental policy stated in the 1984 guidelines did not change. The policy still is to prevent mergers that may create or enhance market power or facilitate its exercise. At most, we have become more sophisticated at recognizing certain characteristics -- such as product homogeneity, secrecy of the terms of transactions, and sales that are frequent and relatively small -- that may make the joint exercise of market power after a merger more likely.

What has changed is our enforcement philosophy. While the merger guidelines we apply are basically the same, we ironically have more faith that they can be intelligently applied than did our predecessors who authored them. We no longer assume that government will necessarily get it wrong and can only do harm; rather, we apply the available tools in an even-handed way to advance consumer interests, and thus further the various goals that Congress established.

Our goal today is to protect consumer welfare, but we use that term in a different sense than the Chicago School did. It is not appropriate to maintain that the merger laws are only concerned with achieving the best allocation of resources. That is not a fair reading of the legislative history. Merger efficiencies do matter, but so do price increases that consumers have to pay, reductions in quality of products, less service, less variety of goods and services and reductions in other forms of rivalry such as innovation and R & D. We can agree that many transactions are intended to achieve efficiencies, but we won't assume efficiencies in any particular case -- we have to examine what the evidence tells us.