Reimagining merger analysis to include intentClick here to read the full article online
A broad swath of policymakers, antitrust and economic scholars, and practitioners tend to agree that section 7 of the Clayton Act, as it is applied, has been deficient in identifying and prohibiting anticompetitive mergers, particularly those involving the acquisition of nascent competitors in digital markets. An important reason for this problem is that while the language of the Clayton Act is flexible and broad, its implementation has evolved into a narrow, economic-focused analysis that requires (or expects) quantitative evidence, statistical tests, and other empirical methodologies to show competitive harm and establish a prima facie case. This approach, difficult to apply even under ordinary circumstances, sets an unusually high bar for plaintiffs where the mergers involve dynamic technology markets in which firms compete more on innovation than on price. That is because the economic tools – reasonably effective in assessing price effects – are not well equipped to measure and predict innovation harms in the long run. The problems are exacerbated when dominant firms acquire nascent competitors because the potential competitive impact of their acquisition is necessarily even more uncertain and, therefore, the quantifiable metrics even less helpful. The inherent difficulties of proof may be a reason Facebook faced no antitrust challenge when it acquired Instagram and WhatsApp about a decade ago.
In this paper, I make a case for reimagining merger analysis to include intent, to help satisfy the plaintiff’s evidentiary burden and strengthen merger enforcement. Insisting on, or strongly preferring, empirical data to demonstrate effects of a proposed acquisition when that data is unavailable means that the merger law will fail in its core mission for at least certain types of mergers. The better approach, therefore, is to be open to the use of other sources of evidence—namely intent—to supplement standard economic analysis. Intent evidence has probative value in predicting the competitive effects of mergers and acquisitions, and therefore can play a useful role distinguishing between mergers that are likely anticompetitive and those that are not.
Subjective statements of an acquiring firm’s senior management expressing their insights regarding the market, including how that market is likely to evolve and who might pose a future competitive threat, would greatly help in a comparative assessment of how a market would probably look in the future both with and without the acquisition. And that assessment is important in determining whether the proposed acquisition is likely to substantially reduce competition. The paper will illustrate this by examining the collection of emails and statements made by Facebook’s executives relating to the company’s famous acquisitions of Instagram and WhatsApp. The insights on future competition facing Facebook gleaned from these statements would not have been revealed from a purely economic analysis, no matter how rigorous. Had the Federal Trade Commission considered those statements when it reviewed the mergers, it might have decided to challenge those acquisitions, instead of clearing them.
The consideration of intent evidence should not require legislative action as no major case has barred its use, though many courts and commentators today are dismissive of its value. While critics have raised a few issues that deserve some attention, this paper argues that the objections raised are overstated. Nevertheless, the paper also proposes ways to minimize the risks of unreliability and other concerns that critics have raised.