By Doug Kelly, CEO of American Edge

Yesterday, the Biden Administration’s Federal Trade Commission (FTC) and Department of Justice (DOJ) released new guidelines that attempt to turn back the clock to the 1960s on U.S. corporate merger and acquisition (M&A) policy.

Unfortunately, these proposed guidelines would put much of the U.S. economy under the thumb of federal regulators, hampering America’s thriving economy and innovation ecosystem, and undermining the dynamism that has made our economy the world’s envy. Here are three major problems with the new guidelines:


1) The guidelines will hurt America’s economic engine – especially startups and small businesses

M&A activity in the United States is the most dynamic worldwide, valued at an estimated $1.6 trillion in 2022, or nearly 4.5 times larger than second-place China. Mergers allow companies to achieve economies of scale, increase efficiencies, lower prices, create new jobs, reduce risk by diversifying their businesses, access new markets, develop new customer segments, find additional distribution channels, and more.

But rather than allowing the free market to work, the new M&A guidelines would allow the government to pick economic winners and losers, dictate market structures, and play to favored constituencies.

For example, the new guidelines argue that vertical mergers of companies operating along different parts of the same supply chain can “foreclose competition.” But courts, which just this month firmly rejected the FTC’s foreclosure argument, have found vertical integration creates efficiencies for consumers and “virtually never” poses a competition threat when undertaken unilaterally and in competitive markets.

The guidelines would also damage startups and small companies’ ability to raise capital. The agencies suggest “common ownership” (same investors holding stakes in industry rivals) could hinder competition. However, there’s little evidence for this speculative theory, and it risks blocking small businesses from accessing necessary funding because institutional investors typically support multiple companies in the same industry, providing capital and expertise for growth, job creation, and innovation.

In fact, a 2017 detailed study of 48 counties concluded that venture capital investments flourish in conditions promoting mergers and acquisitions, whereas restrictive laws dampen such investment activity, meaning less funding for startups.

The new guidelines also overlook the fact that getting acquired is the goal of a majority of startup founders. So, policies that restrict the ability of startups to raise capital for launch, further scale products and services, and then exit with a profit will severely reduce the incentives and ability of entrepreneurs to start and grow the next generation of great American companies. By hamstringing startups and acquisitions, the FTC isn’t just punishing tech companies in Silicon Valley. It could also damage local and regional technology hubs from coast to coast.


2) These guidelines will hurt consumers

For decades, antitrust law has used the “consumer welfare standard” to ensure that judges and government agencies focus on how business conduct affects real people, rather than favored political groups or individual competitors. But the FTC’s new enforcement guidelines would turn this on its head.

For example, in the FTC’s summary of the 13 new guidelines, the word “consumer” was glaringly absent. Additionally, the draft guidelines warn that corporate “efficiencies are not cognizable if they will accelerate a trend toward concentration.” That legalese means that, if a merger would help a company become more efficient, cut costs, lower prices to consumers, and then attract even more customers, the FTC may disallow this merger because a flood of happy customers is creating excessive “concentration.” That could have the effect of raising prices for consumers, the exact opposite of the goal of the antitrust laws.


3) The proposed guidelines will undermine our ability to innovate and hurt our ability to compete with China in the global tech competition

America’s platform technology companies are the most innovative in the world. Countless consumers have benefited from their numerous product offerings and vigorous competition, while their low-cost services have helped millions of small businesses thrive and grow.

But the new guidelines explicitly target these companies for greater scrutiny, including their past patterns of acquisitions. As a result, the FTC and DOJ could attempt to unwind decades-old mergers and discourage merging companies from streamlining operations. In short, no deal, no matter how old, would ever really be finalized. This would significantly disrupt a company’s willingness to invest in research and development (R&D), launch new products, and create new jobs through expansion.

Meanwhile, as U.S. tech companies are being limited in their acquisitions, Chinese and Russian companies could remain active in the merger and acquisition space acquiring critical startups with cutting edge technologies like facial recognition.

The bottom line: With the new merger guidelines, the Administration is starting down a dangerous path that could harm America’s economy, undermine our ability to innovate, and leave consumers footing the bill. Congress and the courts should reject the FTC and DOJ’s overreach and protect America’s private sector economic engine.