Antitrust Is Easy (When You Think You Know All the Answers)

W e are in a new era for antitrust. There’s an attempt being made to throw the old rules out, and unfortunately, their replacements are being written by two bureaucratic government agencies at the forefront of “progressive” change in antitrust enforcement. Together, the Federal Trade Commission, under Lina Khan, and the Department of Justice Antitrust Division, under Jonathan Kanter, are updating their agencies’ merger guidelines to push a political agenda against mergers. Luckily, their attempts to discourage mergers in the marketplace are unlikely to go far. Hubris within the antitrust agencies will ultimately backfire when the courts reject their attempts to overhaul merger enforcement.

The rule of law requires that people know beforehand whether something is legal or illegal — it’s what keeps you from going to jail at the whim of those in political power. For an economy to thrive and grow, the rule of law must prevail in business. It’s only when businesses know the rules that they’ll be willing and confident to make investments, hire workers, and innovate.

Consider a speed-limit sign. The sign makes drivers aware of the rules of the road. If we suddenly removed the posted signs, you would rely on rules of thumb (maybe, 30 miles per hour in cities, 55 in the country). Maybe you’d drive extra slow in cases where you were unsure. Or maybe you’d drive faster, risking a fine, or worse, an accident. Without speed-limit signs, roads would be congested at best, and chaotic and dangerous at worst. Most likely, everyone would have to leave for work earlier; Amazon would deliver packages more slowly; the uncertainty over the speed limit would be wasteful for society as a whole.

In the same way, the merger guidelines help give companies a better sense of whether the DOJ or FTC will try to block the merger. Unlike issuing a speeding ticket, however, determining whether a business has violated merger guidelines never involves objective measures. The DOJ or the FTC has to build a case to prove that the business in question broke the rules. This takes time, and because of vague language in current antitrust laws, exactly when the agencies should try to stop a merger is hotly debated by economists and lawyers.

Luckily, since 1968, the DOJ and later the FTC have tried to make more explicit the types of mergers that they would challenge by issuing guidelines. As our knowledge of the economics of mergers changes, the FTC and DOJ periodically update their guidelines.

To get input on updating these guidelines, the agencies ask for comments from the public. Unfortunately, these agencies’ most recent request betrays their ultimate political agenda for the update. Khan and Kanter declared at the outset of this process that they have “launched a joint public inquiry aimed at strengthening enforcement against illegal mergers.” Right from the start, they show their preference for simply stronger — not necessarily better — enforcement, leading to (in the words of Stanford’s Doug Melamed) a “very tendentious” effort to produce new merger guidelines now.

Throughout the public-inquiry process, the agencies have asked leading questions of the public such as, “What changes in standards or approaches would appropriately strengthen enforcement against mergers?” Again, instead of following the law and economics, which may or may not require stronger enforcement, the agencies assume the answer they want. An agency that biases the information it collects leaves itself vulnerable to groupthink.

Luckily, not everyone is on board with the direction of antitrust. There is a growing concern in the FTC over the direction the agency is headed. In a survey from last year, only 53 percent of FTC employees believed the senior leaders maintain high levels of honesty and integrity, down from 87 percent in 2020.

Try as they might, Khan and Kanter can’t simply will a “new” antitrust into being. The agencies can bring as many cases as they want, but the courts decide whether to allow mergers. The courts do not simply follow the agencies’ guidelines but must agree with the agencies that the guidelines reflect the current understanding of the law and of economics.

As UC-Berkeley’s Carl Shapiro and Georgetown’s Howard Shelanski have shown, the most recent guidelines “have continued to be well accepted by the courts.” Consider our speed-limit analogy again. The courts agree the speed limit sign is legitimate and clearly marked. That does not mean the courts will accept anything the agencies push.

By pushing a political agenda against mergers that courts may or may not uphold, the guidelines lose function as a signpost to businesses about what is and what is not allowed. This throws the rule of law into jeopardy.

If the law is to be changed, it should be by legislators, not regulators.  And plenty of legislators are looking for a change. Just last week, Senators Amy Klobuchar (D., Minn.) and Chuck Grassley (R., Iowa) introduced to the full Senate a revised version of their “self-preferencing” bill. I’ve argued against that bill since the first version was posted last fall. But if this is the time to overhaul antitrust, Congress needs to give courts the direction through new legislation, not the FTC and DOJ through merger guidelines.