Room for Improvement: Merger Standards Continue to Diverge Internationally
The increase in international mergers around the world has heightened emphasis on the goal of fostering convergence of merger standards, say Larry Fullerton and Megan Alvarez of Sidley Austin LLP. The authors of “Convergence in International Merger Control,” in the spring issue of Antitrust, underscore the progress that major jurisdictions have made toward convergence; the similarities that now exist among some critical players on the fundamentals of horizontal merger analysis; and the positive role of the 2010 U.S. Horizontal Merger Guidelines.
Still, there is room for improvement, the authors say. They point out ways in which substantive merger standards continue to diverge internationally and show how the 2010 guidelines may have missed an opportunity to promote beneficial convergence or actually clouded an emerging consensus among major jurisdictions.
The challenges associated with divergent merger standards are, in fact, increasing, rather than decreasing, requiring expanded efforts to achieve greater convergence, say Fullerton and Alvarez. In their article, they cite David Gerber, a professor at Chicago-Kent College of Law at the Illinois Institute of Technology, who says “deepening” globalization in commerce, coupled with an increase in the number of states that have competition laws and a growing intensity of enforcement efforts, “increase the probability and potential intensity of conflicts among jurisdictions.”
There is a one-step forward, two-steps back quality to pursuing convergence in merger control, say Alvarez and Fullerton, a former deputy assistant attorney general in the Department of Justice’s Antitrust Division. This requires continued and even increasing convergence efforts over time to avoid the creation and enhancement of market power and threatened harms to consumers. In fact, the International Competition Network, or ICN, has identified increased convergence as one of its four main goals for the coming decade.
Horizontal merger analysis. Differences in the basic approaches continue to exist, say Fullerton and Alvarez. These disparities extend to issues such as the purposes of horizontal merger control, the analysis of competitive effects, and the role of market definition and concentration.
Consider Germany, the authors say. According to new draft merger guidelines, the purpose of merger control in the country is “to protect competition as an effective process,” which the guidelines explain, “may sometimes coincide with protecting competitors.” In written comments on this draft, two sections of the American Bar Association expressed concern that this principle “is not necessarily or always equivalent to the microeconomic concepts of either consumer welfare or total welfare,” and may diverge from principles applied in merger analysis in the United States and European Union.
Objectives reflected in such guidelines often capture differing legal traditions, histories and stages of economic development, Fullerton and Alvarez say. They may become a source of divergent outcomes in reviews of horizontal mergers, and they remain worthy of continued policy attention.
In a growing number of jurisdictions, the analysis of a horizontal merger’s competitive effects focuses on whether the merger is likely to lead to adverse unilateral effects and/or coordinated interaction, Fullerton and Alvarez say. However, some governing statutes and guidelines may be silent on the theories of competitive effects that antitrust authorities should investigate, or either mandate or permit consideration of factors that are not a part of any conventional unilateral and coordinated effects analysis.
2010 U.S. Horizontal Merger Guidelines. The guidelines introduce the concept that enhanced market power may “make it more likely that the merged entity can profitably and effectively engage in exclusionary conduct,” and that adverse results may include “exclusionary unilateral effects.” The reliance on a presumption of harm in the guidelines sets the United States apart from other major enforcement jurisdictions, Fullerton and Alvarez say.
In relation to the goal of fostering convergence, the effects of the 2010 guidelines remain to be seen, the authors say. While the guidelines have both reflected and fostered convergence to a certain extent, some commentators have argued that by providing greater flexibility in merger-enforcement decisions, the guidelines will be a less-useful tool for educating non-U.S. enforcement officials and for leading policy development in other jurisdictions. This might contribute to greater divergence over the long run.
Where complete convergence cannot be achieved, the policy of “managing” divergence, as recommended by some, may be the best alternative, the authors say, but it is too early to turn to such a strategy. They quote professor Daniel Crane of the University of Michigan Law School: “Differing historical foundations do not mean that shared normative goals cannot be achieved over time. Antitrust’s existential purpose need not become frozen at the time of the regime’s creation. The ostensible goals of U.S. antitrust, for example, have changed and adapted considerably over time. Such convergence on an international scale is possible as well.”