By Asheesh Agarwal
In a recent 60 Minutes interview, journalist Lesley Stahl asked Federal Trade Commission (FTC) Chair Lina Khan several insightful questions about mergers. In particular, Ms. Stahl inquired as to their beneficial effects: “What about the argument that when companies merge prices often come down, because of efficiencies, scale?” Ms. Stahl also noted that courts have rejected the FTC’s aggressive antimerger theories and that “start-up founders complain that [Chair Khan] is spooking investors so much, she’s actually stifling innovation.”
The FTC, however, fails to appreciate that mergers can enhance competition, increase investment, and benefit consumers. During the interview, Chair Khan blamed “widespread corporate consolidation” for high prices, even though study after study has debunked the narrative that the American economy is overconcentrated.
Even worse, the FTC seems uninterested in understanding the investment and innovation ecosystem.
In late May 2024, the FTC and Department of Justice (DOJ) issued a Request for Information (RFI) on “Corporate Consolidation Through Serial Acquisitions and Roll-Up Strategies.” Of course, the agencies should study mergers and would have been well served by initiating such studies before bringing a series of challenges that have mostly failed, as well as revising longstanding merger guidance. Still, better late than never.
Unfortunately, the agencies mainly seek negative information about mergers. For example, question 2(c) asks whether serial acquisitions encourage “actual or attempted coordination or collusion between competitors” and question three posits nine subparts about ways in which an acquirer might harm competition. By contrast, the agencies ask no questions – not one – that solicit information about possible pro-competitive benefits; at most, question four asks the public to identify “claimed” business objectives.
To build confidence in their objectivity, the agencies should supplement their questions with new ones about the benefits of serial acquisitions. For example, the agencies could ask whether, in any given market, serial acquisitions led to lower prices or an increase in output, investment, variety, quality, or efficiency.
The answers could lead to better enforcement actions that have a greater likelihood of success. The agencies themselves have recognized that mergers “are one means by which firms can improve their ability to compete.” Only 15 years ago, the DOJ’s top antitrust enforcer stated that “the vast majority of mergers are either procompetitive and enhance consumer welfare or are competitively benign,” and just four years ago, the agencies affirmed that mergers can promote innovation and competition.
Many other observers recognize the benefits of mergers. A bipartisan congressional commission, antitrust treatises, a comprehensive literature survey, and recent court decisions all found that mergers can and do advance procompetitive business objectives. Mergers also can promote innovation. A recent study found that mergers resulted in more patent applications and investment in research and development.
In addition, the agencies should concentrate on their statutory mission. Within the current RFI, certain questions seem to focus on unrelated ideological issues. For example, question 2(d) and its subparts inquire into labor topics unrelated to the rare phenomenon of a labor monopsony, such as “[h]ave workers been reclassified (i.e., from employees to independent contractors) or outsourced to/from third-party providers?” and questions about “work conditions” and “employment stability.”
It is not obvious how any of these questions relate to the agencies’ statutory mission. The agencies cite no statutory provisions or cases in which a court has found that issues of worker classification, work conditions, or employment stability, while important, had any relevance to a merger analysis.
Similarly, question five asks a series of questions about private equity and the role that investors play in managing an acquired company. Again, the agencies cite no statutory provisions or cases in which a court has found that the identity of a purchaser as a private equity firm has any relevance to a merger analysis, except to the extent that the firm may own other companies in the same market. To the contrary, as entrepreneurs recognize, private equity helps fund startups and fuel innovation.
Ultimately, the public benefits from vigorous, objective antitrust enforcement that embraces empirical evidence, adheres closely to statute and past practice – and recognizes, as the agencies have understood in the past, that mergers and acquisitions often promote competition, innovation, and consumer welfare.
Many grasp that market reality. Let’s hope that the FTC and DOJ learn to do so as well.
Asheesh Agarwal is an advisor to the American Edge Project and an alumnus of both the Department of Justice and Federal Trade Commission.