Merger Guidelines Should Support Innovation, Productivity, and Global Competitiveness, Report Argues

WASHINGTON—The merger guidelines that regulators use to enforce U.S. antitrust laws have significant drawbacks that contribute to inconsistent merger analyses, investor and corporate uncertainty, and economic harm. To overcome these limitations, merger guidelines should do more to support innovation, productivity, and global competitiveness among U.S. firms, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

ITIF’s report comes as the Federal Trade Commission (FTC) and Justice Department (DOJ) Antitrust Division are revising the guidelines, having issued a joint request for information (RFI) declaring regulators’ intent to modernize antitrust enforcement by incorporating “new learning related to firm and market behavior.”

“Unfortunately, the RFI failed to ask the right questions about firms’ and markets’ behavior in the global economy,” said Aurelien Portuese, director of ITIF’s Schumpeter Project on Competition Policy and the author of the report. “Instead of recognizing that leading firms often operate globally and asking about better ways to review cross-border mergers or account for the national competitiveness implications of mergers between domestic firms operating internationally, the RFI focused mostly on potential justifications for banning mergers. This revealed a line of reasoning that would lead inexorably to quashing mergers that could be highly beneficial.”

The report walks through the historical evolution of merger guidelines, starting in 1968 and moving toward the more recent ones in 2010 and 2020. The report shows the overreliance on price to define markets and the disinclusion of global competitiveness led to the flaws we see in the merger guidelines today.

The report concludes that rather than fundamental overhauls of merger guidelines, antitrust agencies should instead opt for continual improvements and incremental progress. ITIF offers a series of recommendations for antitrust agencies to improve merger guidelines:

• They must provide legal certainty by building on legal precedents, not disregarding them.
• They must recognize global market conditions and take competitiveness considerations into account.
• They should be size-neutral, not biased toward deconcentration.
• They must recognize the innovation and productivity benefits of integration, not pervert the Schumpeterian notion of “dynamic competition.”
• They should exercise discretion in assessing whether companies being acquired are “potential” or “nascent” competitors.

“The FTC and Chair Khan are attempting to prevent monopolies before they happen, which is a futile practice,” said Portuese. “As a result, they are disincentivizing mergers, stifling competition, and harming the U.S. economy.”

Read the report.