Foreign Mergers that Harm Domestic SellersClick here to read the full article online
Buyer power allows buyers to drive down prices by reducing purchases or exerting bargaining leverage. Mergers that harm sellers by creating buyer power—mergers to monopsony, using the term “monopsony” in a broad sense—are typically actionable under antitrust law. While antitrust law has conventionally focused on harms to consumers arising from monopoly, enforcement agencies are now more aggressively scrutinizing transactions for harms to sellers arising from monopsony. However, this paper identifies a set of transactions that continue to escape scrutiny: foreign mergers that harm domestic sellers.
Antitrust enforcement agencies typically learn about proposed mergers through premerger notification. In jurisdictions such as the United States and the European Union, parties to a merger that meets certain size thresholds must notify the jurisdiction’s enforcement agency before completing the merger. The notification requirement helps avoid the unscrambling-the-egg problem by enabling antitrust enforcers to detect problematic mergers in time to seek preliminary relief. Reflecting the fact that U.S. and E.U. antitrust laws apply extraterritorially, both jurisdictions impose premerger notification on foreign merging parties when the turnover of those parties in the U.S. or the E.U. meets certain thresholds. As a result, the notification requirement captures foreign mergers that threaten to harm domestic consumers through higher import prices. But an unrecognized aspect of jurisdiction-wide turnover thresholds is that they may exclude foreign mergers that threaten to harm domestic sellers through lower export prices. For instance, if merging parties in X buy inputs from Y but do not sell outputs into Y, the merger would be exempt from premerger notification in Y due to insufficient turnover in Y, even though the merger could harm sellers in Y.
This notification gap matters because it may lead to underenforcement of mergers when the merging parties are in a different jurisdiction from their suppliers. The seller-side antitrust enforcement agency may not learn about the merger in time to seek effective relief. Meanwhile, the buyer-side agency would be unlikely to block a merger that only harms foreign sellers. To solve this underenforcement problem, enforcement agencies should monitor nonnotifiable mergers of foreign buyers. Jurisdictions should also consider adding an alternative notification threshold for foreign mergers that considers purchase volumes.