Public Policy on Corporate Mergers: Has It Strayed From Reality?

Abstract

Abstract While there has been much criticism of anti-merger law enforcement and Supreme Court decisions in this area, the real problem is an interpretation of Congressional intent, which is based on an unrealistic view of competition. Since the courts are in no position to revise this supposed Congressional intent, Congress itself must come to grips with the realities of a 20th-century economy. Introduction Businessmen, economists, lawyers and occasionally dissenting judges have recently commented on the confusion and uncertainty created by recent Supreme Court decisions invalidating, corporate mergers and acquisitions under Sec. 7 of the Clayton Act. Sec. 7, as amended in 1950 by the 1950 Celler-Kefauver Anti-Merger Act, basically provides that no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or assets of another corporation also engaged in commerce, where in any line of commerce in any section of the country the effect of the acquisition may be substantially to lessen competition or to tend to create a monopoly. In amending Sec. 7, Congress did not define the terms "line of commerce in any section of the country" or "substantially".The key words are "...where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly".Many people believe that it is difficult, if not impossible, to understand the direction of the enforcement and interpretation of our anti-merger laws or to reconcile enforcement and interpretation with what Congress originally intended. I believe that the Supreme Court and the Dept. of Justice have read into Sec. 7 of the Clayton Act a Congressional intention which is not clearly spelled out in the statute itself. We cannot say, in all fairness, that the Court has acted contrary to the intention of Congress. It seems. however. that the Supreme Court has extended the scope of Sec. 7 beyond the language of the statute, but apparently consistent with statements (the Court calls them the "dominant theme") appearing in the Committee Reports and Hearings. it is one thing to refer to Committee Reports for help in understanding ambiguous statutory language. It is an entirely different thing to use such reports to broaden or extend a statute. The hearings on the 1950 amendment were to an appreciable extent one- sided and dominated by the views of the enforcement agencies. Therefore, all the views expressed in the Committee Reports were not fully considered by Congress. At least some of the conclusions are based on incomplete data and are of questionable validity, particularly in the light of contemporary, economic knowledge. Against this background I should like to raise a number of questions. First: If the enforcement trend under Sec. 7 of the Clayton Act reflects Congress's concern with curbing "incipient" trends toward economic concentration, does contemporary economic knowledge show that there is such a trend?Second: Does contemporary economic knowledge show that such a trend, if it exists, is harmful?It is the supposed Congressional intention behind Sec. 7 of the Clayton Act or, to be more precise, the Linderlying assumptions and the public policy Sec. 7 supposedly reflects, that I should like to examine in the light of contemporary economic knowledge. I said "examine" and not "answer" because I do not assume that I have the answers to the questions which I think can and should be raised. Therefore, accept these remarks as a contribution to a discussion which has been going on for some time, and in which other voices and opinions have been and hopefully will continue to be raised. Definition of "Concentration" Before going any further, I will define the term "concentration".Perhaps I should start by saying what concentration is not. It bas nothing to do with the size of firms or "big business". As M.A. Adelman of the Dept. of Economics of MIT put it, "absolute size is absolutely irrelevant" in this context. To understand the meaning and limitations of statistics on concentration, we must distinguish "economies of scale" from market control or power, and avoid comfortable generalizations, such as "economic power". JPT P. 797ˆ