The Evolution of Judicial Standards: Evidence from Litigated Merger Trials

Abstract

Monday-morning assessments of antitrust merger trial outcomes are common. Critics of a court decision blocking a merger may opine that the outcome is an indication that the judiciary has become overzealous in its interpretation of the Clayton Act’s prohibition of mergers whose effects “may be to substantially lessen competition, or tend to create a monopoly.” Similarly, in the wake of an adjudicated merger that is allowed to proceed, critics may argue that the judiciary has become too lax in its interpretation of the Clayton Act. Less common are attempts to systematically assess the body of merger outcomes to determine judicial trends and tendencies. This void is particularly salient because in recent years a substantive narrative has emerged that judicial application of the antitrust laws — overly influenced by the Chicago School — has become increasingly hostile toward antitrust authorities’ (Agencies’) challenges of mergers over time. A corollary of this narrative is the claim that the shifting composition of the judges hearing merger cases has also contributed to the propensity of the courts to deny the Agencies’ merger challenges. In this paper, we first describe the historical context within which the current narrative has arisen. Although this narrative builds upon certain developments in merger enforcement over the years, we find that a more complete assessment of the evolution of merger enforcement and judicial outcomes yields a substantially more ambiguous interpretation of the evolution of judicial standards than has been proffered. That is, the current narrative does not provide an unambiguous basis upon which to draw conclusions regarding shifts in judicial standards in litigated merger cases. Given this ambiguity, the paper then develops a theoretical model designed to capture the essence of the interplay among merging firms, antitrust authorities and the courts. The model yields clear predictions on shifts in judicial standards from the outcomes of both litigated mergers cases and those that settle prior to trial. The paper then provides an empirical investigation of litigated merger outcomes based on the population of all merger challenges in the United States over 1979-2019. Two-stage econometric methods are employed to account for the potential that the set of litigated mergers is a non-random sample of all merger challenges. This empirical analysis reveals that, contrary to the current narrative, judicial standards have shifted in favor of the Agencies over time. The probability that merger challenges proceed to trial has declined over time while the probability that antitrust agencies win trials has increased over time — both results are indicative of judicial standards applied to merger challenges that have grown increasingly pro-enforcement over time. We find no statistically significant evidence that the outcomes of antitrust merger cases vary according to whether the judges involved were appointed by Republican or Democratic presidents.