Merger Law Research Articles

The Structure of Merger Law

The Structure of Merger Law

Taking Innovation Seriously: A Dynamic Competition Model for Antitrust Law

Although innovation is often portrayed as a byproduct of competition, innovation and related dynamic aspects of competition are also, and perhaps more so, drivers of competition. The current antitrust framework, as illustrated by merger law and the agency guidelines that bear on that law, emphasizes static, demand-side conditions in defining markets and assessing likely anticompetitive effects. Only after the market has been defined and competitive effects assessed are innovation and dynamic, supply-side developments considered, and then in the context of rebutting anticompetitive findings already made on the basis of the static assessment. In addition, the burden of demonstrating and quantifying the supply-side developments is placed on the merging parties despite their relatively limited access to competitor capabilities, strategies, and plans. The following article suggests a new framework that places the burden of addressing dynamic considerations primarily on the enforcement agencies that must be met before the agencies can establish a presumption of illegality against a proposed transaction or a prime facie case against a competitive practice. It also suggests a more qualitative assessment of innovation and likely supply responses that is elaborated in the accompanying article by Professor David J. Teece.

Prospects of Merger Review in the Digital Age: A Critical Look at the EU, the United States, and Germany

This article takes a critical look at merger law and practice in the EU, the United States, and Germany regarding data-related transactions. It focuses on the current legal standard and evaluates the recent decision practice in these jurisdictions. This includes the increasing implementation of data-related remedies, such as data access and data separation commitments, which have so far not been the focus of scholarly attention. On this basis, the article discusses the prospects of merger review within the framework of current policy reform debates. It concludes with recommendations for future legislative action in Germany and the EU. In particular, the legislature should implement a tightened and better suited merger review regime for dominant undertakings in digital markets.

Why Do Corporations Merge and Why Should Law Care?

Mergers and acquisitions are extraordinarily prevalent in the United States, generating massive expenditures every year. However, a serious empirical puzzle lies at the heart of all that activity. That empirical phenomenon’s most remarkable feature by far is that even though it is well established in an extensive literature and implies far-reaching policy consequences, American law ignores it entirely. Generations of researchers have failed to find evidence that merger and acquisition activity generates any lasting benefits for the combining firms’ owners or anyone else. No one seriously doubts that efficiencies of scale or technological integration are real or that acquisitions sometimes achieve them. Still, the evidence strongly implies that they are mostly available in small deals among small firms. While the results are no longer very seriously contested, no one has any conclusive explanation for the several puzzles they pose. This paper comprehensively reviews the empirical literature and works through the policy implications for the major bodies of law it affects. The most important insights are two. First, the evidence should undermine the confidence among scholars of corporation law in the regulatory self-sufficiency of market institutions, on which corporation theory depends so heavily. In particular, a major hope for controlling managerial agency cost—one of the theory’s chief preoccupations—remains the hope that the so-called “market for corporate control” governing hostile takeovers will discipline underperforming managers. The evidence discussed here suggests that the market produces no meaningful benefits at all. The second lesson is simpler. The other major legal regime governing mergers and acquisitions—antitrust—should return to the simpler, pro-enforcement presumptions by which it once more effectively limited market concentration. The fear of jeopardizing pro-competitive gains, on which antitrust merger law has been rendered largely inert, is no longer very defensible. The balance between false positive and false negative should be reset.

The Labor Turn in United States Merger Law

The Labor Turn in United States Merger Law

Showcases and showstoppers: the DMA’s impact on merger control in digital markets**

The Digital Markets Act (DMA) focuses on several ex ante behavioural obligations on entities that have been designated as so-called gatekeepers. However, the DMA also introduces certain elements that have the potential to significantly impact the established merger control system within the EU. It includes two new relevant instruments for the European Commission aiming at the regulation of gatekeepers’ ability to grow externally by way of mergers and acquisitions. One of the obligations imposed by the DMA is the obligation on gatekeepers to inform the Commission of any intended concentrations irrespective of whether they are notifiable under EU merger laws. Secondly, the DMA seeks to implement a link between the behavioural control of gatekeepers and their transactional activities by authorizing the Commission to prohibit the gatekeeper, for a limited time, from conducting any more acquisitions in the specific sector that is affected by so-called systemic non-compliance with the obligations under the DMA. This article explores the impact of these two types of provisions and calls for a cautious approach, striking the balance between the interests of undistorted competition, innovation and the dynamic impact that M&A activity may bring to these and other relevant factors.

Governance in local government organizations and their state-owned enterprises: Impact of merger laws in Greece

Corporate governance plays a key role for the companies of the private sector, and recently corporate governance started to be involved within the structures and activities of public entities and state-owned enterprises (SOEs). Many countries, including Greece, have put regional and municipal merger plans into place in order to reduce costs and enforced the ideals of economy, efficiency, and effectiveness in public administration. This study, focusing on these issues, illustrates the current state of Greek governance and recent legal developments after the merging of local government organizations (LGOs) and their associated municipal and regional-owned companies (SOEs) and provides new insights and conclusions regarding the implantation of governance in the LGOs and their SOEs after mergers

Varieties and Mechanisms of Common Ownership: A Calibration Exercise for Competition Policy

Abstract Minority shareholdings have been on the regulatory agenda of competition authorities for some time. Recent empirical studies, however, draw attention to a new, thought-provoking theory of harm: common ownership by institutional investors holding small, parallel equity positions in several competing firms within concentrated industries. While critical voices abound, EU and U.S. antitrust agencies closely follow these developments indicating an appetite to act. This article connects the common ownership debate to merger control and explores: i) the aims and scope of legal control as regards partial acquisitions in different jurisdictions; ii) the nature of potential competition effects arising from passive minority shareholding; and iii) the plausibility of common owners’ anticompetitive strategies from a corporate governance perspective. Drawing a distinction between “concentrated” and “diffuse” common ownership, it sheds light on the different supporting mechanisms and varying harm potential of each variety. “Passive influence” mechanisms characterizing “diffuse” common ownership may not only generate plausible and material competition concerns in given circumstances but present challenges for the effective jurisdictional and remedial design of merger law frameworks. Competition policy should stay current by explicitly recognizing these novel insights in enforcement practice and developing guidelines on how to treat common ownership cases in the future.

Managing Nascent Digital Competition: An Assessment of Australian Merger Law under Conditions of Radical Uncertainty

The Australian Competition and Consumer Commission is among several national competition regulators that have recently expressed concerns about the inability of existing merger law to address competition issues that arise from acquisitions of digital start-ups. The unique characteristics of rapidly evolving digital markets present unprecedented challenges for traditional merger regimes that rely on predictions of future market conditions to justify intervention. This article argues that Australian merger law is unable to adequately address the uncertain risks presented by acquisitions of nascent competitors in digital markets. It further argues that traditional rule-based merger regimes are unable to properly navigate conditions of extreme uncertainty. An alternative regulatory model that is explored in detail is experimentalist governance, which promises to allow regulators and firms to respond to radical uncertainty by recursively crafting solutions to problems that emerge in dynamic digital markets over time.

Competitive Harm from Vertical Mergers

The antitrust enforcement Agencies’ 2020 Vertical Merger Guidelines (VMGs) introduce a nontechnical application of bargaining theory into the competitive assessment of vertical acquisitions. This bargaining theory has much in common with the theory of unilateral effects that is applied to horizontal mergers. The VMGs focus on post-merger price increases requires consideration of a vertical merger’s role in eliminating double marginalization (EDM). The problem occurs when two bargaining firms both have market power but are unable to coordinate their output. Assessing EDM bundles two themes that Ronald Coase developed in his two most well-known articles: “The Nature of the Firm” and “The Problem of Social Cost”. The first argued that the boundaries of a firm are determined by the firm’s continuous search to minimize costs. The second argued that two traders in a well-functioning market will achieve the joint-maximizing solution. Anti-interventionists rely heavily on Coasean arguments that unless high transaction costs get in the way firms will bargain to joint maximizing results. If that is true, then double marginalization will rarely provide a defense to a vertical merger. The law of vertical mergers deals largely with firms that transact with one another routinely, in legally enforceable buy-sell relationships. In a well-functioning vertical market durable double marginalization should be rare.

Maintaining Balance: A Comprehensive Look of The Struggle Between Government Protection and Government Overreach in Regard to Mergers and Their Remedies

In September of 2020, the Department of Justice made a change to the Merger Remedies Manual, which discusses the correct remedies for mergers that violate the standards in the Heart-Scott-Rodino Act and how to best enforce them. A deeper look at this manual prompts a deeper analysis on current antitrust merger standards and how they balance government power and personal liberties. The Merger Remedies manual and its corresponding document with the Federal Trade Commission, as well as the merger standards in regard to the rise of Private Equity Buyers and Big Tech, promote concern over the balance between constitutional rights and promoting fairness in the marketplace. This article is among the first to analyze how current merger remedies stand in being effective in regard to the technology sector, while also analyzing the constitutionality of those merger regulations.The article contributes to the literature in three primary ways. First, the article deeply analyzes the two manuals for merger remedies from the above mentioned agencies and determines which better balances governmental powers with personal liberties and where both agencies could improve. Second, the article outlines the current concerns with large technology companies and their current rights in regard to merger standards while also acknowledging their monopolizing tendencies, presenting ways in which such issues could more easily and constitutionally be regulated through antitrust merger laws. Third, the article analyzes the current stance from the merger regulating agencies towards private equity firms and how their changing stances and opinions support a less government-regulative stance towards private equity firm involvement.

Varieties and Mechanisms of Common Ownership: A Calibration Exercise for Competition Policy

Minority shareholdings have been on the regulatory agenda of competition authorities for some time. Recent empirical studies, however, draw attention to a new, thought provoking theory of harm: common ownership by institutional investors holding small, parallel equity positions in several competing firms within concentrated industries. While critical voices abound, EU and U.S. antitrust agencies closely follow these developments indicating an appetite to act. This article connects the common ownership debate to merger control and explores: i) the aims and scope of legal control as regards partial acquisitions in different jurisdictions; ii) the nature of potential competition effects arising from passive minority shareholding; and iii) the plausibility of common owners’ anticompetitive strategies from a corporate governance perspective. Drawing a distinction between “concentrated” and “diffuse” common ownership, it sheds light on the different supporting mechanisms and varying harm potential of each variety. “Passive influence” mechanisms characterizing “diffuse” common ownership may not only generate plausible and material competition concerns in given circumstances but present challenges for the effective jurisdictional and remedial design of merger law frameworks. Competition policy should stay current by explicitly recognizing these novel insights in enforcement practice and developing guidelines on how to treat common ownership cases in the future.

The 2010 HMGs Ten Years Later: Where Do We Go From Here?

In this article, which is part of the Symposium on the Tenth Anniversary of the 2010 Horizontal Merger Guidelines, we suggest a number of improvements that should be considered in the next revision of the Guidelines. Our analysis is based on the observation that horizontal merger policy has suffered from under-enforcement. We provide evidence that the enforcement agencies face significant resource constraints that require a triage process that inevitably leads to under-enforcement. In light of merger law placing greater weight on avoiding false negatives and under-deterrence than false positive and over-deterrence, the article suggests a number of ways in which the under-enforcement bias might be corrected, including (among others): rolling back the increase in the HHI “red zone” thresholds; mandating anticompetitive presumptions for mergers with high GUPPIs, acquisitions of mavericks, and acquisitions by dominant firms; closer analysis of common ownership by financial funds; and expanded analysis of potential competition mergers.

Mergers, Antitrust, and the Interplay of Entrepreneurial Activity and the Investments That Fund it

This paper addresses the potentially negative implications of proposed antitrust legislation on the entrepreneurial ecosystem in general and particularly focuses on the Venture Capitalists (VCs) that fund it. First, it offers a review of how antitrust merger law currently works and how proposed legislative changes to antitrust may threaten the innovative VC-backed ecosystem that has made the United States the center of global innovation across many different industries. Accompanying this review are some empirical observations. Second, recognizing that understanding innovative entrepreneurial activity calls for a deep appreciation of those who back it, the paper provides an overview of the entrepreneurial ecosystem and the motivations of VCs. In so doing, it identifies the drivers of entrepreneurial innovation and explain why changes to merger law may threaten these models of facilitating innovative growth-orientated entrepreneurs. Lastly, the paper concludes that changes to merger law may have negative effects on the entire entrepreneurial ecosystem and hinder US innovation.

Why Do Corporations Merge, and Why Should Law Care?

Merger and acquisition activity is extraordinarily prevalent in the United States and generates massive expenditures every year, but at its heart is a serious empirical puzzle. Despite many years of search, a range of empirical researchers have failed to find evidence that this activity generates benefits, either for the combining firms’ owners or for anyone else. While the problem is not unknown among academics, and the result is no longer very seriously contested, no one has any conclusive explanation for it. The law, for its part, ignores it entirely. This paper comprehensively reviews the empirical literature and the several confusing puzzles it raises, and works through the policy implications for the bodies of law it affects. The most important insights are two. First, the evidence casts doubt on the general confidence within corporations scholarship in the promise of oversight by robust market institutions, as an alternative to law and courts, especially the disciplinary power of the market for corporate control. Second, the less for antitrust law is simple. The fear of jeopardizing gains from merger, on which the antitrust law of mergers and acquisitions has been rendered largely inert, is no longer very defensible. The balance between false positive and false negative should be re-set.

Competitive Harm from Vertical Mergers

The 2020 Vertical Merger Guidelines produced by the antitrust enforcement agencies introduce a nontechnical application of bargaining theory into the assessment of competitive effects from vertical acquisitions. The economics of such bargaining is complex and can produce skepticism among judges, who might regard its mathematics as overly technical, its game theory as excessively theoretical or speculative, or its assumptions as unrealistic. However, we have been there before. The introduction of concentration indexes in the Merger Guidelines was initially met with skepticism but gradually they were accepted as judges became more comfortable with them. The same thing very largely happened again when unilateral effects theories of mergers were introduced in the 1990s. The bargaining theory that drives much of vertical merger analysis today has much in common with the theory of unilateral effects. In any event, the value of a particular model depends not on its verisimilitude but rather on its testability. The theory that relates a concentration index to the risk of competitive harm from horizontal mergers involves as much conjecture as does the bargaining theory that the Nash model for vertical mergers contemplates. The concentration thresholds in the Horizontal Merger Guidelines capture a rough generalization about a large number of collusive or oligopolistic strategies, some of which are not consistent with each other. What they share in common is belief in a link between the number of firms in a market, the increase in concentration that results from the merger, and the extent of higher prices. Double marginalization as a vertical merger defense occurs when two bargaining firms each have market power but are unable to coordinate their output. Each takes a markup without considering the other, and aggregate markups are too high. Both firms as well as their purchasers would be better off if they could coordinate better. In the AT&T/Time-Warner case the defendants argued that after the merger TW would not coordinate with AT&T but would set its prices as if the merger had not occurred. In that case the merger would not have eliminated double marginalization either. The debate over the elimination of double marginalization bundles two themes that Ronald Coase developed in his two most well-known articles, The Nature of the Firm and The Problem of Social Cost. The first argued that the boundaries of a firm are determined by the firm’s continuous search to procure inputs in the most cost effective way. The second argued that two traders in a well-functioning market will achieve the joint-maximizing solution. This dual relationship is too often ignored. Anti-interventionists rely heavily on Coasean arguments that unless high transaction costs get in the way firms will bargain to joint maximizing results. If that is true, then double marginalization will rarely provide a defense to a vertical merger. The law of vertical mergers deals largely with firms that transact with one another routinely, in legally enforceable buy-sell relationships. By contrast, the actors who appear in The Problem of Social Cost do not bargain with each other regularly. In a well functioning vertical market durable double marginalization should be rare.

Institutional Conditions of Economic Globalization: Effects of Antitrust and Merger Laws on the Global Integration of the Acquisition Market1

A central insight from institutional theory about markets is that they cannot operate without governing rules to guide interactions among actors. Because most of these rules are made and enforced within national borders, international economic transactions are said to suffer from an “institutional abyss,” the lack of institutional arrangements for economic exchanges. Scholars have found that the abyss can be filled by two factors: network connectedness, such as inter‐governmental organizations, and intercountry economic agreements, such as the World Trade Organization or free trade. This article proposes a third factor: the global diffusion of governmental regulations. When countries adopt highly standardized regulations on a particular transaction, it provides legal familiarity for foreigners and reduces procedural uncertainty surrounding how the transaction should be executed. Using fixed‐effects models on longitudinal data, I show that the adoption of antitrust and merger laws increases the volume of cross‐border mergers—the transaction the laws are meant to regulate. This result stands in direct opposition to financial scholars’ predictions that antitrust and merger laws will reduce cross‐border mergers because the laws are meant to restrain, not liberate, the transaction. This article theorizes how the diffusion of regulations, not the elimination of regulations, can facilitate global market integration.

Impact of Merger on Financial Performance of Nepalese Commercial Bank

Mergers and Acquisitions have become the most widely used business strategy of restructuring and strong financial institution to achieve competitiveness, to ensure long term existence with suitable profitability, to forge entering in new markets, and to ascertain the capital base etc. Specially, the merger law policy-2068 and monetary policy 2072 issued by Nepal Rastra Bank, the regulatory body of banks in Nepal, have been experienced as the most effective weapons for merger and acquisition in Nepalese Banking industry. This study makes an attempt to the latest Monetary Policy lays down measures meant to encourage banks to merge. By Shrawan 2076, commercial banks are required to maintain an average interest rate spread (the difference between rates on loans and deposits) of 4.4 percent from the current 4.5 percent; banks that complete mergers and acquisitions by that time will get a one-year extension. Also, by Shrawan 2076, commercial banks are required to float at least 25 percent of their paid-up capital in debentures; banks that decide to tie the knot by that deadline will get a one-year reprieve. A merged bank also does not have to seek Nepal Rastra Bank's approval to open new branches. Currently, the board of directors, CEOs and deputy CEOs are required to abide by a cooling-off period of six months during which they cannot join another bank. This restriction will not apply to executives of a merged bank. The argument for mergers and acquisitions go something like this. There are just too many banks and financial institutions in Nepal. As of Ashad 2076, there were 28 commercial banks (Class A), 32 development banks (Class B), 24 finance companies (Class C) and 91 micro-credit companies (Class D). Conceivably, larger banks should be able to fund large infrastructure projects individually. The existence of larger Nepali banks could also make it easier for them to branch into India. Bigger Nepali banks will be able to compete with foreign banks better on Nepali soil.

The 2010 HMGs Ten Years Later: Where Do We Go From Here?

In this short article, which is part of a RIO Symposium on the Tenth Anniversary of the 2010 Merger Guidelines, we suggest a number of improvements that should be considered in the next revision of the Guidelines. Our analysis is based on the observation that horizontal merger policy has suffered from under-enforcement. We provide evidence that the enforcement agencies face significant resource constraints which require a triage process that inevitably leads to under-enforcement. In light of merger law placing greater weight on avoiding false negatives and under-deterrence than false positive and over-deterrence, the article suggests a number of ways in which the under-enforcement bias might be corrected, including (among others) rolling back the increase in the HHI “red zone” thresholds; mandating anticompetitive presumptions for mergers with high GUPPIs, acquisitions of mavericks, and acquisitions by dominant firms; closer analysis of common ownership by financial funds; and expanded analysis of potential competition mergers.

Big Tech Acquisitions and the Potential Competition Doctrine: The Case of Facebook

The Big Tech companies, including Google, Facebook, Amazon, Microsoft and Apple, have individually and collectively engaged in an unprecedented number of acquisitions. When a dominant firm purchases a start-up that could be a future entrant and thereby increase competitive rivalry, it raises a potential competition issue. Unfortunately, the antitrust law of potential competition mergers is ill-equipped to address tech mergers. We contend that the Chicago School`s assumptions and policy prescriptions hobbled antitrust law and policy on potential competition mergers. We illustrate this problem with the example of Facebook. Facebook has engaged in 90 completed acquisitions in its short history (documented in the Appendix to this paper). Many antitrust commentators have focused on the Instagram and WhatsApp acquisitions as cases of mergers that have reduced potential competition. We show the impotence of the potential competition doctrine applied to these two acquisitions. We suggest that the remedy for Chicago School damage to the potential competition doctrine is a return to an empirically tractable structural approach to potential competition mergers.