Dynamic Efficiencies & Merger Analysis Hugh Hollman* Washington, D.C. December 14, 2011 *Views expressed are the author s alone and do not necessarily represent the views of Jones Day or the Federal Trade Commission 1
Roadmap Sail and Steam Betting on 4G Beyond capacities of the law HMGs Treatment of Efficiencies HMG s Today: Static and Dynamic? Agency Advocacy 2
Sail versus Steam 3
Hypothetical British East India Company wants to purchase a clipper building company in the 19 th Century. Argues that needs to compete against steam (and petroleum powered ships) With 20/20 hindsight likely allow despite HHI s being off the charts Why? 4
A neo-schumpeterian framework for antitrust analysis that favors dynamic competition over static competition would put less weight on market share and concentration in the assessment of market power and more weight on assessing potential competition and enterprise-level capabilities. J. G. Sidak and D. Teece, Dynamic Competition in Antitrust Law, 5 J. COMP. L. & ECON. 581 (2009) (emphasis added). 5
Sprint/Nextel Merger We agree that if the merger were to facilitate the national development of WIMS-type services, the ensuing opportunity for consumers to enjoy a new broadband service would amount to a significant public interest benefit. 6
In the absence of concrete plans for the actual development and deployment of WIMS, however, any attribution of public interest benefits from this merger as it relates to the 2.5 GHz band would be theoretical and speculative.... Therefore, we do not factor into our analysis public interest benefits with regard to the 2.5 GHz band. Sprint-Nextel Order, 20 FCC Rcd at 14029-30 168-69 (emphasis added). 7
Sprint News Release, Sprint Accelerates Deployment of Network Vision and Announces National Rollout of 4G LTE (Oct. 7, 2011) 8
Antitrust Paradox Measurement of efficiencies was beyond the capacities of the law. Even if efficiencies could be quantified, balancing them against any potential increase in market power resulting from a merger to determine net effect on price and output would be utterly insoluble. Robert H. Bork, THE ANTITRUST PARADOX 126 (1978) 9
Efficiencies in Past HMGs 1968 Guidelines: exceptional circumstances 1982 Guidelines: affirmative defense + clear and convincing evidence standard 1984 Guidelines: part of competitive effects + sliding scale 1992 Guidelines: removed clear and convincing evidence standard 1997 Guidelines: efficiencies section + described cognizable efficiencies See Kolasky and Dick, The Merger Guidelines and the Integration of Efficiencies into Antitrust Review of Horizontal Mergers, 71 ANTITRUST L.J. 207 (2003) 10
Efficiencies in 2010 HMGs In conducting this analysis, the Agencies will not simply compare the magnitude of the likely harm to competition absent the efficiencies. The greater the potential adverse competitive effect of a merger, the greater must be the cognizable efficiencies, and the more they must be passed through to consumers, for the Agencies to conclude that the merger will not have an anticompetitive effect.... U.S. Dep t of Justice & Fed. Trade Comm n, Horizontal Merger Guidelines (2010) (emphasis added). 11
Innovation Added section that opens the door to considering dynamic competition. When evaluating the effects of a merger on innovation, the Agencies consider the ability of the merged firm to conduct research or development more effectively. But efficiencies (and dynamic efficiencies) remain an afterthought. Agencies look at weight to be accorded to efficiencies through the lens of static competition Still a defense? 12
Agency Advocacy Sisyphian task if argue efficiency to counter a merger in a concentrated market. Begin instead with dynamic competition Show why static competition view is not appropriate Argue for uniqueness of marketplace Technology market most appropriate to be viewed through a dynamic efficiency lens Fallback to show magnitude and probability of efficiencies 13