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US antitrust law: new rules for a new economy

By sheer coincidence, US trustbusters pledged to revisit how deals are scrutinised on the day Microsoft unveiled its $70bn takeover of Activision. That lent heavy emphasis to the ponderings of a Department of Justice official who wondered whether acquisitions by already “dominant firms” receive enough attention.

The announcement that the Federal Trade Commission and the DoJ may modernise merger review standards included noteworthy specific language about “digital markets”, “multi-sided markets”, “private equity” and “farmers”.

That prompts two questions. Are new approaches needed for a new economy? Or should the authorities simply use their existing powers more aggressively?

If most M&A does not work out for the shareholders of acquirers, as many academics have claimed, it would seemingly be a natural check on dealmaking. There is little sign of that. Lina Khan, chair of the FTC, noted that 2021 produced record dealmaking volumes and banker fees. Debt was cheap, stocks were high and swashbuckling chief executives were emboldened to go for the gold.

The typical “consumer welfare” standard in antitrust reviews is simply to assess whether higher prices resulted from a transaction. The FTC and DoJ are now thinking in a more sophisticated way whether deal efficiencies affect labour and wage markets. They are also pondering whether new-fangled digital business models should be viewed through a different lens. Big tech groups may benefit from network effects that are intrinsically anti-competitive, yet that may not inflate user costs directly.

The FTC feels comfortable enough with existing law to attempt to break up Facebook in court. It is also challenging dominant incumbents such as Procter & Gamble and Illumina from either swallowing up emerging challengers or narrowing supply chains.

Investment bankers say that despite record deal volumes, clients have become more reticent about transactions that could antagonise a Biden administration that has made combating economic inequality a priority. A comprehensive updating of antitrust standards would further chill the M&A business. For that reason, regulators need to be guided by fairness and proportionality, as well as intellectual sophistication, in conducting their review.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.

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