When two companies merge, they combine forces and form a new entity that is intended to be bigger than the sum of its parts. Companies may choose to merge for a number of reasons, but the ultimate goal is to gain market share and increase profitability.
If too many mergers occur within a particular industry, competition may be lessened, which is not good for workers, entrepreneurs, and consumers. Antitrust laws seek to keep industry segments from becoming too concentrated in any one entity. Markets that become monopolized can control who participates, what is offered, and how much consumers will pay.
The first Merger Guidelines were published in 1968 to help people understand how mergers would be reviewed for antitrust violations. The Merger Guidelines are periodically updated, and a 2023 update is currently being finalized by the Department of Justice (DOJ) and the Federal Trade Commission (FTC).
The newest guidelines are particularly leveled at the tech industry and some of the practices dominant tech companies use to expand their businesses and potentially stifle competition.
Why there are Antitrust Laws
Assuring competition in the marketplace means producers of goods and services will continuously strive to become better. It means more options are available to suit different tastes. It provides room for new ideas and gives the little guy a chance. And it helps keep pricing a function of market supply and demand.
The first federal antitrust laws were passed in the late 19th and early 20th centuries, intending to preserve economic liberty and make free trade the law of the land. The laws prohibit unreasonable restraints of trade and any attempt at exclusive possession or control of a trade, good, or service. Mergers must not substantially lessen competition or create monopolies.
Antitrust laws seek to benefit consumers by ensuring businesses have the incentive to provide innovative goods and services that are of high quality and affordably priced.
Increasing Economic Concentration in the U.S.
It’s no secret to most Americans that more and more of the country’s wealth, power, and control are being concentrated among fewer and fewer entities. The U.S. has a monopoly problem. Consider information from the following economic sectors:
- Walmart controls 72% of U.S. warehouse clubs and supercenters.
- Amazon sells 64% of all print books sold online.
- Google and Facebook are responsible for 60% or more of all online advertising.
- Chip makers Intel and AMD completely dominate the microprocessor market.
President Biden’s Executive Order Promoting Competition
In July of 2021, President Biden signed an Executive Order promoting competition in the U.S. economy. The order stated it was in furtherance of the interests of workers, businesses, and consumers in America. It described the growing economic concentration as a threat to economic freedom and sustained prosperity – blaming higher prices and lower wages on the lack of competition.
The President called for vigorous enforcement of antitrust laws with a focus on particular markets, including the tech sector. Of particular concern within the tech sector is the practice by dominant tech companies of eliminating competition by acquiring competitors – a practice that has largely been unchallenged or unsuccessfully challenged under current laws.
The order encouraged the appropriate agency heads to review the existing merger guidelines and consider revising them to prohibit monopolization in the tech sector.
The Content of the 2023 Draft Merger Guidelines
The new guidelines provide a framework for how federal agencies will investigate mergers and determine their potential effect on competition either now or in the future. The guidelines do not carry the force of law but provide clarity as to how antitrust laws will be enforced and are considered authoritative.
As drafted, the updated Merger Guidelines provide as follows:
- Mergers should not significantly increase concentration in highly concentrated markets.
- Mergers should not eliminate substantial competition between firms.
- Mergers should not increase the risk of coordination.
- Mergers should not eliminate a potential entrant in a concentrated market.
- Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete.
- Vertical mergers should not create market structures that foreclose competition.
- Mergers should not entrench or extend a dominant position.
- Mergers should not further a trend toward concentration.
- When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
- When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform.
- When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.
- When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.
- Mergers should not otherwise substantially lessen competition or tend to create a monopoly.
How Tech Company Acquisitions Will Likely Be Affected
Some critics of the new Merger Guidelines think the effect will be to discourage merger activity which may ultimately be bad for both businesses and consumers. Industry experts have said that rigorous enforcement of antitrust laws under the new guidelines would:
- Reduce market efficiencies
- Lead to unchecked government power
- Inhibit the rate of innovation
Within the tech industry specifically, acquisitions have been a way for companies to acquire the talent and technology necessary to expand their businesses. Acquisition has also been a way for smaller players to successfully exit the market.
How to Assess the Antitrust Exposure of a Proposed Merger
The newest version of the Merger Guidelines may discourage tech companies from pursuing plans of expansion for fear of antitrust violations. With a federal focus on monopoly prevention, big tech players may find themselves under increased scrutiny when attempting to grow their businesses through acquisition.
Serving businesses in the Pacific Northwest and beyond for nearly 100 years, the mergers and aquisitions attorneys at Williams Kastner are experienced litigators who help companies successfully navigate the complexities of antitrust laws. If your business is considering merging with or acquiring another company, Williams Kastner can advise you about the issues you may face and what can be done to avoid antitrust liability.