FTC’s Wright Wants More Efficiency Calculations in FTC Merger Reviews
Economists split Thursday on the role of examining claimed efficiencies in a merger review. “The antitrust enterprise has been captured by the narrow cult of the efficiency economist,” said American Antitrust Institute (AAI) President Bert Foer. “I think it’s a good thing,” countered FTC Commissioner Joshua Wright. The two sides squared off at AAI’s annual conference, “The Inefficiencies of Efficiency.”
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Foer held that a singular focus on efficiency can leave markets vulnerable and further expand the country’s wealth gap. Quite the opposite, Wright said. Merger review agencies, of which the FTC is one, should heighten their focus on “cognizable” and “verifiable” efficiencies in their antitrust analysis guidelines, he said. As the Internet obscures traditional lines among industries, some have called on Congress to increase the FTC’s merger review role because of its digital expertise (CD April 10 p20).
"Too much efficiency can be a bad thing, even for efficiency itself,” said Foer. “If we eliminate too much redundancy from our supply chains, they become susceptible,” to problems he said. Firms become too big to manage, “and maybe too big to fail.” These large firms can develop a “softness” because they are “not subject to competition,” even if they are more efficient, said Foer. Merged companies can spend years and considerable money trying to integrate two corporate cultures, he added. Extreme efficiencies may also “elevate barriers to entry for innovators,” he said. Yet none of these factors is incorporated into antitrust law, he said. “Efficiency is not a scientific concept,” and it should not be the driving force behind antitrust analysis, Foer said.
Advanced tools to calculate efficiency are there, the government just needs to catch up, Wright said. “I do not think with respect to the efficiency side we are quite up to speed.” Wright said he would like to update the efficiency sections of the FTC’s antitrust guidelines, last significantly updated with the 2010 horizontal merger guidelines (http://1.usa.gov/1m0Bta6) and a broader 2000 document on “Antitrust Guidelines for Collaborations Among Competitors” (http://1.usa.gov/SWyWll). Future revisions should reduce the emphasis on market power in favor of newer efficiency-based calculations, like the upward pricing pressure (UPP) test, which looks at whether a merging firm will have incentives to increase prices after the merger, Wright said. This would help tip the balance toward more “direct evidence of competitive effects,” he said. The FTC should adopt new antitrust guidelines reflecting these newly developed analytical tools by 2028, he said. “So far at the commission there is one vote for that,” he joked.
Within the FTC, there is “vast disagreement” on what constitutes a “verifiable” efficiency, Wright said. The FTC’s Bureau of Competition and Bureau of Economics have the same mandate to promote competition, but differing opinions on how to conduct economic analysis. “We ought to mean the same things,” Wright said.