Merger enforcement is a critical anti-monopoly weapon. It is one of the many prophylactic tools to prevent market concentration. Strict merger enforcement forces managers of a corporation to invest in their workers and operations rather than simply acquire a competitor that can suppress competition, entrench a dominant position, reduce consumer choice, and deter future entrants. In essence, a world with fewer mergers has firms competing on the factors that promote a fairer, more equitable, and innovative society. (As a side note, research shows that most mergers only benefit financiers and corporate executives)
Congress enacted the Clayton Act, the primary anti-merger law, and its subsequent amendments to foster a business environment that promotes these values and “arrest the creation of monopolies in their incipiency,” to proactively prevent concentrations of corporate power.
Controlling merger law precedent from the Supreme Court and congressional intent requires an aggressive approach to merger enforcement.
The Justice Department sought to advance Congress’s desire for a vigorous merger enforcement regime by enacting bright line merger rules in 1968. In the 1980s, federal antitrust enforcement started to plummet. To make matters worse, the Justice Department has now ignored several mergers in the financial sector that will undoubtedly increase systemic risk in our economy and further concentrate power in the industry.
In my latest article, published today in American Banker, my Open Markets Institute colleague Garphil Julien and I explain why the Justice Department and the incoming Biden administration should reinstate bright line rules.
As the Biden administration begins transitioning leaders into financial and enforcement agencies like the Department of Justice, they must also consider a new approach to merger enforcement with more strict, updated and concrete rules.
The financial industry is a great place to start this new approach as there are a number of big-name deals pending approval.
Earlier this year Visa announced a $5.3 billion acquisition of Plaid that would give the credit card giant a rising competitor in data aggregation. Plaid’s new debit card business would have allowed consumers to purchase online products directly from their bank accounts and mobile applications without using payment processors, such as Visa, that have been known to impose harsh transaction fees for services. This acquisition, exacerbating the spate of consolidation in the financial industry, hurts consumers and independent businesses.
While the Justice Department already announced last month its intention to block the acquisition, the agency missed the opportunity to stop similar monopoly-type mergers that are just as patently harmful.
The current merger enforcement regime leaves too much room for subjective and haphazard enforcement. Anemic enforcement in the financial industry has also led to dangerous concentrations of financial risk in the economy.
History, however, can provide solutions to fix these enforcement issues. The incoming Biden administration must instruct the DOJ to enact new bright-line M&A rules similar to its 1968 guidelines.
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