Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce
April 20, 2023
Amidst regular progressive predictions that one merger or another would end competition as we know it, a new study examines both the prognostications and the aftermath of numerous large mergers.
In the study, Doomsday Mergers: A Retrospective Study of False Alarms, the International Center for Law & Economics examined the rhetoric and empirical reality surrounding a half dozen large mergers, including several involving tech companies. The study found that these mergers were usually benign, sometimes ambiguous, but never truly harmful to competition or consumers. Accordingly, the study undercuts the argument that there is any need to radically alter U.S. policy toward merger review.
Amazon might present the most prominent example. In 2017, when Amazon purchased Whole Foods, progressives worried that the deal would allow the company to dominate the grocery business. According to then-scholar Lina Khan, the deal would “enable Amazon to leverage and amplify the extraordinary power it enjoys in online markets and delivery, making an even greater share of commerce part of its fief.” According to Barry Lynn of the Open Markets Institute, “This is the crushing of competition. Amazon is monopolizing commerce in the United States.”
What actually happened? As the study relays, Whole Foods’ market share has barely budged; several new players have entered the online retail space; and several large retailers have grown faster than Amazon. For consumers, the Amazon-Whole Foods deal “appears to have delivered lower grocery prices and increased convenience to consumers.”
Beer Industry Consolidation
The beer market presents a similar story. In 2016, AB Inbev announced a merger with SABMiller. The American Antitrust Institute warned that the merger would “eliminate competition,” “impose significant price increases on consumers,” and “undermine the continued emergence of craft beer.” Years later, however, the overall competitive effect seems neutral. While the prices of some beers increased, efficiency gains kept average prices flat. At the same time, new craft brewers entered the market, belying the concerns that the merger would eliminate competition. In fact, in the four years following the merger, the market concentration enjoyed by the four largest breweries dropped from 90.8% to 68.6% and the average U.S. market saw an 11% increase in the number of craft brewers.
For other mergers, the alarmist rhetoric also failed to predict actual results. In 2018, after Bayer merged with Monsanto, Senator Amy Klobuchar (D-Minn.) warned that the deal would “significantly reduce competition, limit seed options for farmers, and raise prices for both farmers and consumers.” In fact, corn and soybean prices fell in real inflation-adjusted terms, and rather than enjoy monopoly profits, Bayer’s stock has fallen.
In 2019, after Google bought Fitbit, seven Democratic senators warned that the deal would “further diminish the ability of companies to compete with Google in ... ad technology markets.” In reality, since the merger, both Google’s share of online advertising spending and Fitbit’s share of the smartwatch market have declined.
Overall, the authors rightly conclude that U.S. merger policy should continue to focus on economic evidence of potential harm to consumers, rather than political rhetoric or arbitrary concerns about “big is bad.” As the antitrust agencies have recognized for decades, mergers have the “potential to generate significant efficiencies and thus enhance the merged firm’s ability and incentive to compete, which may result in lower prices, improved quality, enhanced service, or new products.”
Existing U.S. merger policy reviews mergers for genuine competitive concerns based on a range of evidence, including market share but also taking into account ease of entry, substitution effects, and the possibility of efficiency gains. For all their sincerity, progressives fail to appreciate that markets are dynamic: competitors introduce new products; consumers change their preferences; and new technologies can render prior market dynamics obsolete.
Allegations that mergers would harm consumers often fall flat. And without demonstrating compelling evidence that mergers are likely to substantially harm competition here’s little need for antitrust alarmism. Much less a need to alter enforcement of merger law.