The COVID-19 pandemic could cause Congress to strengthen our merger laws. The authors of this short article strongly urge Congress to do this, but to do this in a manner that ignores 5 myths that underpin current merger policy:Myth 1: Mergers Eliminate Wasteful Redundancies and Produce More Efficient BusinessesMyth 2: Current Merger Enforcement Protects ConsumersMyth 3: Merger Remedies Preserve CompetitionMyth 4: The Current Merger Review System Offers Transparency and Guidance to Businesses and the PublicMyth 5: Corporations Need Mergers to Gro

Lande, Robert H.

Vaheesan, Sandeep

English

University of Baltimore School of Law

University of Baltimore Law ScholarWorks@University of Baltimore School of Law All Faculty Scholarship Faculty Scholarship 5-21-2020 Can COVID-19 Get Congress to Finally Strengthen U.S. Antitrust Law? Robert H. Lande Sandeep Vaheesan Follow this and additional works at: https://scholarworks.law.ubalt.edu/all_fac  Part of the Antitrust and Trade Regulation Commons /I f it wasn’t clear that corporate consolidation was a problem before the COVID-19 pandemic, thereshould be absolutely no doubt now. Mergers have severely subverted the U.S. economy’s resilienceand undercut the national response to the coronavirus outbreak.Mergers  to the loss of 600,000 hospital beds between 1975 and 2017 (from 1.5 million toaround 900,000 beds nationwide) and likely  the government of an emergency stockpile ofventilators. And now, with millions of businesses on the ropes due to the crisis but with many of the very  ush with cash, another wave of mergers and acquisitions may be imminent.Facebook has  GIF-creating site Giphy. Amazon and Uber are reported to be   themovie theater chain AMC and food delivery service GrubHub, respectively.To stem this tide, New York Congresswoman Alexandria Ocasio-Cortez and Massachusetts SenatorElizabeth Warren have  the Pandemic Anti-Monopoly Act, which would halt mergers andacquisitions by large corporations and private equity funds for the duration of the COVID-19 crisis and itsa ermath. Other Congressional progressives, including Washington Congresswoman Pramila Jayapaland House Antitrust Subcommittee Chairman David Cicilline, have  on House leadership to includea merger moratorium in the next rescue package. The sponsors  that the principal lifeline fordistressed small and medium-sized businesses and workers should be federal aid, not acquisitions bylarge corporations and powerful  nanciers.The merger moratorium represents a major rethinking of federal merger policy. Although Congress a strong anti-merger . in 1950, the Department of Justice (DOJ) and the Federal TradeCommission (FTC) have maintained a lax posture toward consolidation since the early 1980s. They have nearly all mergers to proceed and blocked them under only extremely limited circumstances.by  and Can COVID-19 Get Congress to FinallyStrengthen U.S. Antitrust Law?A new bill from Elizabeth Warren and Alexandria Ocasio-Cortez strikes at the myths behind mergers.Robert H. Lande (https://washingtonmonthly.com/people/robert-h-lande/)Sandeep Vaheesan (https://washingtonmonthly.com/people/sandeep-vaheesan/)May 21, 2020POLITICAL ANIMAL (https://washingtonmonthly.com/political-animal/)contributeddeprivedlargest corporationspurchased near acquiringproposedcalledunderstandenacted  lawpermitted/For instance, out of the 78 mergers proposed between 2015 and 2019 that involved two  rms worth morethan $10 billion each, the DOJ and the FTC successfully  only three of them. The result ofpermissive merger policy has been a   in concentration across industries and markets.This tolerant attitude toward consolidation is built on a series of myths and has been deeply damaging tothe public.Myth 1: Mergers Eliminate Wasteful Redundanciesand Produce More Ef cient BusinessesMergers are o en justi ed on the grounds of eliminating redundancies and improving the productiveef ciency of  rms. In their , the DOJ and the FTC said “a primarybene t of mergers to the economy is their potential to generate signi cant ef ciencies.” This story restson false assumptions and little or no evidence.In fact, by eliminating redundancy in the name of ef ciency, mergers can leave the economic and socialsystem unprepared for natural disasters, pandemics, and other systemic shocks.The current crisis has shown how health care mergers have eliminated essential excess capacity. But theproblem overall is not limited to this moment in time. Consolidation in the seed industry has le  theUnited States and the world more vulnerable to the ongoing crisis of climate change. As Monsanto (nowpart of Bayer) rolled up the industry, it focused on selling the most pro table seeds anddiscontinuedmany less popular seed lines—food sources that may be essential as farmers try to adapt toclimate change.Equally disconcerting, corporations themselves  become more productive following mergers. Areputable body of  ndings  that mergers o en result in a loss in productivity. As then-JudgeRichard Posner  in a 2015 interview: “I wish someone would give me some examples of mergers thathave improved ef ciency. There must be some.”Myth 2: Current Merger Enforcement ProtectsConsumersThe DOJ and the FTC  that protecting consumers is the principal purpose of merger enforcement.Former FTC commissioner Joshua Wright  that mergers “o en generate signi cant bene ts forconsumers—lower prices and higher quality” and that the two agencies successfully identify and addressthe small fraction that would hurt consumers.stoppeddramatic increase2010 Horizontal Merger Guidelinesdo notshowssaidstateasserted/A closer look at the record, however, does not warrant applause for the DOJ and the FTC’s efforts againstmergers. The best study on the effect of mergers on consumer prices is Professor John Kwoka’s meta-analysis of post-merger evaluation studies. He  the impact on prices from mergers that werenot successfully challenged. Of the 42 mergers subject to credible post-merger evaluation, thirty-fourresulted in price increases. His review also found that there were adverse quality effects from many ofthe mergers.Kwoka’s research is consistent with what other scholars have . For instance, hospitalconsolidation has consistently  to higher prices and been a key  of rising health care costs.Myth 3: Merger Remedies Preserve CompetitionEven on the rare occasion that the DOJ and FTC do “challenge” mergers through legal action, theygenerally settle the matter and do not stop the consolidation outright. To address the loss of head-to-headrivalry, as well as other antitrust concerns, the agencies o en agree to resolve the lawsuit on thecondition that the merging corporations sell a line of business or other business assets to a third party orobserve rules of fair dealing. con dently  these remedies will “preserve competition.”In reality, these attempts to “remedy” illegal mergers have a poor track record. The itself has that its remedies too o en fail, and Professor Kwoka has  they typically lead tosigni cantly higher prices.One of the most spectacular remedy failures involves the 2015 merger between the grocery chainsAlbertsons and Safeway. In exchange for not suing to block the merger, the FTC required the twocorporations to sell stores in more than 100 local markets. These stores were sold to a small regionalchain Haggen, which became nine times larger due to the acquisition. Haggen experienced majoroperational problems following this huge overnight expansion and soon went bankrupt. In thebankruptcy process, Safeway/Albertsons  many of the stores it had sold to Haggen.Myth 4: The Current Merger Review System OffersTransparency and Guidance to Businesses and thePublicDOJ antitrust chief Makan Delrahim and FTC commissioner Christine Wilson   that theyaspire for transparency and predictability in their decision-making.evaluatedconcludedled driverThey predictFTC recognized foundreacquiredhave stressed/But the current merger review system is a model of opacity and subjectivity. One leading antitrustattorney  “there are few government functions outside the CIA that are so secretive as the mergerreview process.”The agencies  on an “effects based”  in which they attempt to predict how a proposed mergerlikely will affect consumers going forward. This open-ended, speculative exercise invites aggressivelobbying from corporations and encourages them to assemble an army of economists and lawyers tomake the case for their mergers behind closed doors, as ProPublica  in a 2016 story.Despite being the nation’s top antitrust enforcer, Delrahim  this system of secrecy to help shepherdT-Mobile’s  of Sprint through to completion in April. Behind the scenes, he effectively servedas federal matchmaker for the two wireless carriers and Dish, which purchased some assets from themerging parties with the aim of becoming a telecom company.The  between American Airlines and US Airways painfully illustrates this system in action.The DOJ initially sued to stop this merger that would reduce the number of national airlines from  ve tofour. A er a  urry of lobbying activity by the two airlines and their political allies, the DOJ abruptly the merger in exchange for the two airlines selling landing and takeoff rights at seven majorairports.This remedy, however,  to address the colossal harms from losing national airline, as laid out in theoriginal DOJ complaint. The merger, which the DOJ earlier  would result in “presumptively illegal”levels of concentration on more than a thousand routes, was allowed to go through and  to higher airfares and fees.Myth 5: Corporations Need Mergers to GrowMergers—even —are o en justi ed on the basis that they permit corporations to expandtheir operations and enter new markets. Antitrust enforcers and scholars  that mergers are acritical way for businesses to grow.Yet mergers are not the only, nor even the best, way for corporations to grow. Instead, they could hiremore workers and invest in plant and equipment and new technologies. Unlike buying and swappingexisting business assets, investing in new facilities expands the capital stock of the economy and createsnew jobs. Allowing companies to grow through the easy game of buying existing  rms actually spursbusinesses to strategize toward consolidation and from investments in production capacity and thelatest technology.saidrely approachreportedusedacquisition2013 mergerpermittedfailedsaidsubsequently ledthe very largestassertaway/Robert H. Lande Venable Professor of Law at the University of Baltimore School of Law.Sandeep Vaheesan, legal director at the Open Markets Institute, has published widely on the politicaleconomy of antitrust law, including its misapplication to workers.A good case in point came a er the Obama administration forced AT&T to  its takeover of T-Mobile in 2011. Neither wireless carrier stagnated. As a matter of fact,   improved their serviceand invested in their networks, and an independent T-Mobile  vigorous competition among thefour national carriers.All of this is important because the federal antitrust agencies, relying on false assumptions, have for toolong not enforced anti-merger law. Their tolerance of consolidation has produced an economy that isfragile and now struggling to respond effectively to the current crisis.The merger moratorium proposed by the progressive powerhouse of Ocasio-Cortez and Warren,alongside other Congressional Democrats, is a chance to change the existing pro-merger policy regimeand abandon the associated  ctions. It is high time Congress restores a strong anti-consolidation norm infederal antitrust law. The Pandemic Anti-Monopoly Act is the perfect place to start.abandonboth  rmsinstigatedRobert H. Lande (https://washingtonmonthly.com/people/robert-h-lande/)Sandeep Vaheesan (https://washingtonmonthly.com/people/sandeep-vaheesan/)© 2020 Washington Monthly.

Can COVID-19 Get Congress to Finally Strengthen U.S. Antitrust Law?

https://scholarworks.law.ubalt.edu/cgi/viewcontent.cgi?article=2108&context=all_fac

Can COVID-19 Get Congress to Finally Strengthen U.S. Antitrust Law?

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