When my young kids want a treat, they usually ask me or their mother for permission. A negotiation ensues. Promises are made. Concessions are extracted. More often than not, after some delay and occasional tears, my kids will get their treat — but at a price.
This arrangement (mostly) works for a family with young children, but our economy shouldn’t operate on this model. Federal agencies aren’t parents, and economic actors aren’t children who must seek prior permission for routine conduct. Beyond specific areas such as national security and health and safety, our economic framework rests on a foundation of freedom. That framework has produced the strongest economy in the history of humanity.
Unfortunately, many policy types want to expand the situations in which private companies must seek prior permission from the federal government for routine conduct. Based on the belief that “big is bad,” these proposals would flip the current rule that the government bears the burden of proving that a particular merger would harm competition.
Under these proposals, companies of a certain size, or in certain industries, would bear the burden of proving that their mergers — even small acquisitions — would affirmatively improve competition. Makan Dehlrahim, a prominent Republican who heads the Department of Justice’s Antitrust Division, endorsed this concept.
Let’s hope that Republicans, Democrats, Libertarians, and any holdouts from the Whig Party, oppose these plans. For 40 years, a bipartisan consensus has affirmed that antitrust policy should protect competition and consumers, and not serve as a tool to achieve other social goals. Just a few years ago, the bipartisan Antitrust Modernization Commission agreed unanimously that “no major changes” to merger enforcement policy are necessary.
In response to recent queries from the House Antitrust Subcommittee, most surveyed antitrust experts opposed substantive statutory changes to the antitrust laws. Veterans of both parties agreed that investigators already have the necessary statutory tools to combat anticompetitive conduct.
Not only are these proposals unnecessary, but they would also likely hamper the very dynamism that has made America’s economy the envy of the world at precisely the wrong time, just as the nation struggles to recover from the pandemic.
Reversed presumptions could discourage investment in start-ups and delaying deals for months or years, a particular concern in sectors of the economy that move quickly and rely on innovation, such as technology and health care. For instance, in December, Peloton, which makes high-end stationary bikes, announced plans to purchase Precor, which supplies commercial fitness equipment for gyms and hotels, for $420 million. With the pandemic, Peloton’s home equipment sales have surged, while Precor’s commercial market has suffered.
The deal is a win-win-win. It increases Peloton’s manufacturing capability, infuses cash into Precor and ensures that many of its employees have jobs, and allows consumers to receive their orders more quickly. It’s a great example of how markets can react quickly and positively to changing conditions when left largely unconstrained from top-down regulation.
With reversed presumptions, however, Peloton would have to prove that this routine deal fostered competition, a challenging task whenever an independent competitor is disappearing from the marketplace. After all, one could argue, Precor might bounce back or even grow to challenge Peloton’s standing in the market. Even if Peloton met its burden, the deal might take months longer to close, to the detriment of all concerned.
Moreover, as a practical matter, such changes to this country’s fundamental approach to business mergers could benefit America’s adversaries and their state-directed economies. According to a recent congressional report, China’s foreign direct investment has been targeting potentially sensitive areas, including early-stage advanced technologies.
Should America raise new hurdles for our domestic competitors to invest in new technologies? Rep. Ro Khanna, D-Calif, has warned against changing antitrust policy to punish large tech companies because such changes could inadvertently benefit China. “What we don’t want,” she says, “is the only big tech companies to be Chinese — Alibaba, Baidu, and Tencent.”
Right now, the burden lies on the government to show that routine private conduct harms competition. That’s where the burden should stay. Throughout America’s economic history, large companies have acquired smaller firms in ways that promoted competition by allowing merged firms to bring more products to more consumers more quickly.
Indeed, President Trump’s own Council of Economic Advisers concluded that more aggressive standards for blocking mergers could reduce venture capital funding for start-ups. If these ideas had been in place during the last century, the government could have blocked many deals that ultimately helped consumers and competition.
Beyond the short-term economic consequences, all Americans should worry that the new proposals would allow political actors to weaponize antitrust law. If private companies must ask for prior permission, which media companies must do before the Federal Communications Commission, the government can extract concessions that have little or nothing to do with competition.
With the merger presumption in its favor, the FCC has routinely browbeaten companies into conceding points unrelated to the harms alleged to flow from the merger. In 2006, for instance, the FCC conditioned approval of the AT&T-BellSouth merger upon the companies’ “voluntary” compliance with the FCC’s Open Internet Policy Statement, and another time, refused to approve the merger of satellite radio companies until they “volunteered” to offer certain set-asides.
Instead of dramatic changes, concerned policymakers should monitor and support the courts and the antitrust agencies to enforce existing laws. The Federal Trade Commission and Department of Justice recently issued new guidelines for vertical mergers — let those play out in court.
The FTC just sued Facebook over past mergers — let’s see how the courts evaluate those claims. If Congress wants to act now, it should ensure that the antitrust agencies have the resources they need, not tilt the playing field in their favor.
When my kids want cookies, I can insist that they first finish their homework. When policymakers in Beijing, or even Brussels, want to influence behavior, they can simply withhold consent for routine conduct. But all Americans, of all political stripes, should hesitate before giving the federal government the power of a parent over a small child, one already insidiously wielded by many foreign governments exert over their citizens.