2.1: Anticompetitive Mergers and Practices

Identify anticompetitive mergers and practices that cause the greatest consumer injury</Description>

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Taking action against anticompetitive mergers and anticompetitive business conduct is the first step in effective antitrust enforcement. our strategy The FTC seeks to identify and take action against anticompetitive mergers and practices with as much accuracy as possible. While certain business conduct (such as price fixing among competitors) is clearly anticompetitive, mergers and many other forms of business conduct can benefit, harm, or have no effect on consumers. consequently, both under- and over enforcement can harm consumers’ interests. The agency seeks to take enforcement action against transactions or conduct that harm, or are likely to harm, consumers. at the same time, the agency seeks to avoid taking actions that prevent businesses from completing transactions or engaging in practices that fundamentally benefit consumers or have no competitive effect. The FTC also tries to identify enforcement targets as efficiently as possible so that it can devote the bulk of its resources to further investigation of, and possible challenge to, the most problematic mergers and practices. a related, but important, consideration is to conduct each inquiry in a way that minimizes the cost or inconvenience to businesses, while still enabling the agency to gather sufficient information to support each enforcement decision. Given the agency’s limited resources, the FTC directs much of its attention and resources to certain segments of the economy that are particularly important to consumers and in which it has particular expertise. These include health care, pharmaceuticals, energy, real estate, and technology. MERGER ACTIVITIES. The premerger notification requirements of the Hart-Scott-Rodino (HSR) Act provide the FTC with an effective starting point for identifying potentially anticompetitive mergers, acquisitions, and joint ventures (collectively referred to as mergers) before they are consummated. The HSR Act requires companies to report certain proposed mergers to the FTC and DoJ, which jointly enforce the HSR Act, and wait for a specified period (usually 30 days) to allow for antitrust review. FTC staff examines each transaction to determine whether it poses a threat to competition. in most cases, a reasonable judgment can be made about whether the merger has the potential to be anticompetitive based on the materials filed with the HSR act notification. in other cases, a formal request for additional information may be issued by the FTC. This is referred to as a “second request.” Because the parties may consummate a transaction after substantially complying with the second request and waiting for a short time period (usually 30 days), a second request investigation typically requires a significant investment of resources by the FTC. The agency must act quickly to gather and review information to make a decision on whether to pursue enforcement action to block a merger within the timeframe set out by the HSR Act and rules. To stop potentially anticompetitive mergers and practices through law enforcement, the FTC seeks legal remedies under the antitrust laws through federal court action, administrative proceedings, or negotiated settlements. for mergers, the most effective and cost efficient strategy has been to prevent anticompetitive mergers before they occur. The agency has implemented this strategy primarily through its authority to seek federal court injunctions preventing these transactions. in many cases, the merging parties elect not to defend a court challenge and instead agree to resolve competitive concerns through a consent agreement. This approach is suitable when the competitive problem relates to only a portion of the transaction, such that a divestiture of assets will be sufficient to preserve or restore competition while allowing other competitively neutral or beneficial aspects of the merger to go forward. in other instances, the parties may abandon a transaction after assessing the likely outcome of an FTC court challenge. When a merger already has been consummated, the FTC generally relies on administrative litigation to restore competition lost as a result of the merger. While the major HSR Act amendments in 2001 reduced the number of mergers subject to the advance reporting requirement, they did not change the standard of legality for mergers. Whereas the vast majority of potentially problematic mergers continue to be subject to the revised HSR filing requirements, smaller merger transactions may still be anticompetitive. consequently, the FTC continues to devote attention to the identification of unreported, usually consummated, mergers that could harm consumers. In FT 2010 the agency successfully challenged four such transactions. This effort involves monitoring trade press, industry sources, and the internet to stay informed of industry developments; following up on case leads from congressional offices, other executive Branch agencies, and state and local governments; and encouraging consumers, businesses, and attorneys to notify the FTC of possible anticompetitive mergers. NONMERGER ACTIVITIES. in the nonmerger area, agency staff reviews complaints received from consumers, businesses, congressional offices, and elsewhere to identify potentially anticompetitive nonmerger business practices. in addition, the FTC has pursued a “positive agenda” of planned initiatives; that is, the agency has taken a systematic and proactive approach to identify specific conduct likely to pose the greatest threat to consumer welfare. The focus continues to be on the types of practices, such as agreements among competitors, which are most likely to harm consumers. in deploying its scarce enforcement resources, the agency focuses on sectors of the economy, such as health care, energy, real estate, or high technology, that have a significant impact on consumers’ daily lives. also, the agency considers the deterrent effects of antitrust enforcement on businesses and whether the FTC has enforcement experience in an area that will enable the agency to make an impact quickly and efficiently. finally, consideration is given to whether the matter presents an opportunity to contribute positively to the development of antitrust law. in nonmerger matters, the FTC seeks to take action against ongoing activity that harms competition. The commission may initiate administrative proceedings before an administrative law Judge to adjudicate the issues and establish a basis for an order that the parties “cease and desist” from anticompetitive conduct. The FTC also has the authority to seek relief in federal courts, although it historically has used this option sparingly in nonmerger matters. again, the agency is often able to negotiate a consent agreement with the parties that remedies the problem without need for litigation. in both merger and nonmerger matters, thorough investigation and sophisticated legal and economic analysis are of critical importance to ensure accurate assessment of the potential for competitive harm resulting from the transaction or conduct in question and, if necessary, demonstrate the likelihood of harm before an adjudicative body. When the FTC concludes that the likelihood of such harm indicates a law violation, and no settlement is possible, the commission authorizes its staff to litigate the matter. The frequency with which the agency prevails in litigation or secures a consent order to restore competition is an important indicator of its success in producing tangible benefits for consumers. This is not to say that the FTC, or any law enforcement agency, should win every case. The commission issues complaints when, based on the findings of staff investigations, it has “reason to believe” a merger or conduct is anticompetitive. some cases involve very close issues, on which reasonable minds can and do differ. other cases may be very difficult from a litigation standpoint, but are still worth pursuing. The FTC’s antitrust challenges are defended by highly competent and well-financed counsel. in addition, the FTC’s responsibilities include taking action to help shape the development of the antitrust laws. To fulfill this duty, the agency inevitably must bring cases that pose litigation risks, especially where there is no clear precedent and the FTC is seeking to establish a new legal principle. The FTC also helps consumers and businesses by bringing cases to clarify, or improve upon, existing precedent. Performance Results: The key performance measure under this objective relates to actions taken in a significant percentage of substantial merger and nonmerger investigations. This translates into obtaining a positive result (i.e., litigated victories, consent orders, or abandoned transactions) in 40 to 60 percent of investigations that involved a second request or compulsory process, in the case of merger investigations, or which involved at least 150 hours of investigative effort, in the case of nonmerge investigations. Success on this key outcome measure indicates that the FTC is effectively screening HSR reported merger and nonmerger investigations to identify those that raise significant antitrust issues and warrant further investigation and possible enforcement action, while at the same time permitting deals or conduct that are neutral or beneficial to consumers to proceed unimpeded. This measure evaluates appropriate investigation, case selection, and resolution, as well as the crafting of sufficient and effective remedies. The target range of 40 to 60 percent set for key Performance Measure 2.1.1 reflects the reality that the FTC conducts substantial merger and nonmerger investigations when it believes that a merger or conduct may be anticompetitive, but that not all such investigations should lead to an enforcement action or a positive result. indeed, the existence of a minimum and maximum value recognizes the possibility that the FTC may find itself under- or over-enforcing the competition laws, while the magnitude of the spread between these two values serves to identify a band within which the agency’s performance can be reasonably expected to vary. from this perspective, setting the range at too high a level could be detrimental if the effect were to deter the agency from bringing important, but risky, cases, while setting the range at too low a level could be detrimental as well, if the effect were to incentivize the agency to bring marginal cases. of the remaining measures under this objective, six relate directly to Performance Measure 2.1.1 in that they measure the impact of the agency’s actions, in terms of the magnitude of the affected markets and the associated consumer benefits, as well as the efficiency with which these same actions were undertaken. Whereas the consumer savings measures are designed to assess the ultimate outcome, or impact, of the FTC’s actions in protecting consumers and promoting vigorous competition, by quantifying the impact of the FTC’s enforcement actions on consumer welfare, the volume of commerce measures are intended to give an indication of the economic significance of the relevant product markets. for both merger and nonmerger actions, the FTC measures the volume of commerce and estimates consumer savings in markets in which it obtains a positive result as an indicator of the scope of the FTC’s antitrust enforcement activities. external factors, such as level of merger activity, and internal ones, such as the duration of nonmerger investigations, may cause these results to fluctuate significantly from year to year. consequently, the two volume-of-commerce targets (Performance Measures 2.1.3 and 2.1.6) and the two consumer savings targets (Performance Measures 2.1.2 and 2.1.5) are assessed each year by calculating the average of current year plus the previous four years. in addition to measuring consumer savings in absolute terms, the agency uses efficiency measures that state the FTC will try to save consumers more than the amount of agency resources allocated to the merger and nonmerger programs (Performance Measures 2.1.4 and 2.1.7). The final measure under this objective addresses the international dimension of the agency’s law enforcement efforts by tracking the percentage of cases in which the FTC had at least one substantive contact with a foreign antitrust authority in which the agencies followed consistent analytical approaches and reached compatible outcomes.

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