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Revising the Merger Guidelines: What's in the Toolkit? Tools and Evidence

Episode Summary

This episode is the "What's in the Toolkit? Tools and Evidence" panel from the Revising the Antitrust Merger Guidelines event. It was recorded on September 29, 2023.

Episode Notes

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Episode Transcription

Announcer  0:00  

Welcome to engelberg center live a collection of audio from events held by the engelberg center on innovation Law and Policy at NYU Law. This episode is what's in the toolkit, tools and evidence from the revised antitrust merger guidelines event. It was recorded on September 29 2023.


Christopher Sprigman  0:26  

Okay, why don't we get started? Hi, I'm Chris Sprigman. I'm a professor at the law school. And it's my honor to introduce the panel. And I want to start with one of my three wonderful antitrust colleagues who we're here to honor Daniel rubenfeld, who's professor of law at NYU School of Law and the Robert L bridges, Professor of Law emeritus and Professor of Economics emeritus at the University of California, Berkeley. You all know them well, but let me just say a few words that can't possibly some of Dan's productive and varied career. First, Dan has a long publication record relating to antitrust and competition policy, law and economics and public economics. And when I went back and looked at the scope of Dan's work, what struck me was his great range, mixing technological and theoretical approaches, across many issues in law and economics, always with rigor, and always with, you know, the kind of spark of inventiveness and excitement from his book on democratic federalism, just textbooks on microeconomics and econometric models and economic forecasts to recent work on data standardization with McCall Gazaway. See here, IP privateering common ownership and coordinated effects with Edie Rock who I saw earlier, Dan's work has set a standard of excellence in the field, the one which I hope a new generation management scholars will work to meet. And as with many of the best in our field, Dan served in government from June 1997 to December 1998, as deputy assistant attorney general at DOJ, and also as a consultant for the FTC, the antitrust division and a number of state attorney general's. Dan's leadership in the field is moving recognized over many years and in many ways, he has been a fellow at the National Bureau of Economic Research, the Center for Advanced Study in the behavioral sciences, and the John guy Simon Guggenheim Memorial Foundation. He holds an honorary doctorate from the University of Basel in Switzerland and is a member of the Academy of Arts and Sciences. And I just want to end with a note of appreciation for Dan's warmth and generosity as a colleague. Even before I came to NYU, my impression of Dan, Harry and Eleanor was much the same meaning. I saw them as three incredibly accomplished rigorous antitrust scholars who are also collaborative and open to the ideas and energy of Junior Scholars. And Dan, thank you for that. I want to introduce the rest of the panel and then quickly get started because we have a lot to go through. Jennifer lychee is a partner in the DC Office of Wilmer Hale and the former chief trial counsel, the US Federal Trade Commission's Bureau competition, she focuses her practice on representing clients and high profile litigation and helping clients navigate in antitrust complex environment. Aviv Nero is the near niveau is the George Weiss and Linda Bravo Weiss University professor with appointments in the economics department. In the School of Arts and Sciences and the marketing department of Wharton. He's on leave right now serving as director of the FTC bureau of economics. And Andy gavel is a member of the Howard law faculty and has been since 1989. Teaching antitrust law, civil procedure, complex litigation, federal courts and Supreme Court jurisprudence. So let's get started. And if you've I just want to start with you, just by building on Daniel Francis has excellent question from before, which is, you know, what's new here from the perspective of this panel, which is the economic toolkit in the guidelines? How would you identify the biggest the most important differences between 2010 and the new draft?


Aviv Nevo  3:55  

Thank you, Chris. Then I was going to ask you the break to ask that question again. At the end, and please do if after you hear my comments, I feel it's sort of answered. So first, I'd like to thank the organizers for putting together this really excellent event and for inviting me to speak in it. I'm especially honored to be on the same panel with Dan. Dan and I were colleagues at Berkeley. I joined actually at the summer of 1997. Just went off to the DOJ. I always took it very personally, that was timing, but but we got over it. And when he came back, he pulled me in to work on one of his most important projects that he was working on at the DOJ. Now surely you think that might be the mark of Microsoft case? Like no, no, no, something far more important, which was the prices or the pricing of academic journals, something that's important for all of us, but Dan and I wrote it very well what I think but of course, I'm biased, a very interesting paper on the topic. Dan's always sort of, for me always kind of as a an inspiration and really a model to follow because those of you kind of looked at, you know, the kind of bands sort of cohort, a lot of actually also my ex colleagues from Berkeley, and antitrust, that always stood out to me as being kind of the one that was most, you know, from an economics point of view, the most often econometrician, the most kind of cared about, you know, methods and data and looking carefully at the data. And it's always been an inspiration for me, as I've sort of thought in my own way, at at antitrust, and, you know, many years later, took the position that they had had at DOJ, I filled it myself. And I daresay although Dan might actually hold this against me and try to deny it, I believe that there's an impact of that thinking that for me started, you know, with Dan, and it's kind of inspired me, there is an impact of that in the draft merger guidelines. Okay. So, if there's something you don't like, you can blame, Dan, it's all from him. But no, seriously? I mean, I don't know. I'm not sure we'll get a chance to talk about that. But as you dive into the details of the appendix, and how we talk about econometric methods actually think you're the first guidelines to talk about econometrics methods. Daniel, number one, one new thing, what an impact quartz? I don't know, I'm not going to try to say that. It is actually, in my view, starting from a tradition that really started with that, and we're hoping to continue. So anyway, let me kind of get to the actual question. I do need to say before I start that, the usual disclaimer, the views I'm about to say, I think will become very clear on my own, and do not represent that of the commission or any individual Commissioner. So the goal of the merger guidelines kind of just to sort of step back, is to update the guidelines to really deal with issues in the modern economy. So if I were giving a speech now, and I had to title it, you know, or let me just say, from an economic perspective, that really means sort of sharpening the existing tools, the methods and as well as adding new ones, right. So if I actually had the title kind of my comments as a, give them a title, I would say something like, you know, a modern merger enforcement toolkit for the modern economy. Okay. Now, some of you, especially given the discussion we had in the previous panel saying, you know, what did he have for breakfast? You know, I want some of that, because how can you talk about a modern toolkit on guidelines that refer to old case law? Right, we had a lot of that discussion before. So let me try to sort of take that head on and kind of make a few comments on that and see how the two things I think, you know, interact or don't together. So first, let me just start with a general sort of notion is that I really refuse to accept the idea that something is bad, just because it's all right. So just because something is old, 50 years old, doesn't make it bad. And just for the record, I am over 50 years old. And and that's part of it. I especially find that something that we're unwilling to accept an event like this, honoring our three distinguished antitrust scholars. But more seriously, just the fact that the cases are old is not relevant. The relevant question, I think what was discussed kind of on the panel before is whether they do represent the current state of law or not. I'm an economist. So I get an easy pass on this one and say, I don't know. Okay, you guys go figure it out. And come and tell me later. I should note, though, that the intention and the guideline, and here again, speaking as an economist is a good one. It basically says, let's start with a case law. Right? What's the legal foundation? Because as much as we'd like to say, this is an economic exercise? I mean, let's be clear. It's not it's an economic exercise done within a context of a legal framework, right. So it'd be great if we could sort of agree, here's the legal framework, here's what it says, Here are the general economic principles that build from that. And then here's how it translates the actual tools that we use. Okay, that's the ideal. I think that's the ideal we all strive for. But I think to achieve that ideal, we'd probably have to write not a 51 page document, but something like a 500 page document. And even there, I think there will be a lot of controversy. So I think what happens is there's the discussion that we have on the case law, we heard on the previous panel is there. So from my perspective, it becomes a little bit of a distraction. Okay, I think it's a good discussion to have. As I said, go off, have that discussion on your own and tell me what you decided at the end, so that we as an economist could then pick on and do that, but what I would rather do is to actually go in and dive into the details. So let me talk about the details and then to maybe more directly address the points. And I'll stop here at some point. So let me just actually start with this structure for the horizontal horizontal law guidelines and then stop And then go back and talk about others as well. So as a general matter, I think one of the strength of these guidelines is that they clearly lay out sort of various path for the agencies to explore when investigating a merger. Right. And that's part of the issue that we need to understand is that, you know, the modern economy, there's a lot different industries, competition presents itself in different ways, in these different industries. And it's hard to sort of fit things into kind of neat little boxes. Okay, so the very first thing we need is we need more boxes. And that's what we do here. Right, we try to introduce you are kind of different ways of looking, a lot of them are building on ideas that were existing before, not all of them. For example, you know, the potential competition guideline for it's an idea that wasn't in 2010. Right, there's other guidelines at that as well. And there's other ones where we're trying to build up what we do. The other thing that we tried to do is to move, remove labels. So I do think that one of the big issues that we face in kind of modern markets is the fact that we like to put a label on everything right, we want to call this is a horizontal merger, this is a vertical merger. I actually think in modern markets, that distinction makes absolutely no sense. There are horizontal effects, there are may be non horizontal effects. I think in many cases, you're gonna have a combination of them. So what we do is we try to have the horizontal effects and some guidelines, not horizontal and others, but not label any particular mergers being one or the other. Let me stop here. I'm sure we'll get into kind of some of the other comments


Christopher Sprigman  11:35  

later. So I'm really interested in everyone's reaction to this emphasis on structural presumptions. So first thing is we can talk about guideline one moves the structural presumption back to pre 2010 levels. And I want to ask what people think about this? What's the economic reasoning behind it? Will it change merger enforcement from the perspective of the lawyers? Jennifer, maybe you have a view on that?


Jennifer Milici  11:58  

Yeah, thank you. And thank you for the invitation to be here. I'm very honored to be sitting on this stage with this group of people. Unlike everybody else, I'm of course not an economist, and I'm not a scholar. So I am coming at this really from the perspective of of litigating for sure we are spent litigating and how does this work in courts? What is it? What are we presenting? How does this change how court views things? And I wanted to pick up on something Rohan said in the last panel, which is that, like, courts, when they have a merger case, they look at it and they say, from everything I've seen, is this a bad merger? And is it a bad merger in a way I should care about? And a lot of what gets a court there, it has nothing to do with this, it's having customers come in and complain, or, or the injured parties come in and say in a credible way, if this merger happened, I'm going to be impacted. So I want to start there that that's the framework when we're getting to court is what evidence are you going to present? And how does that tell the court that it's a bad merger, as to the change in this structural presumption here? I think that the merger, that the draft merger guidelines actually do a pretty good job of explaining why that change is made, that it's consistent with a with a prior limit and why, you know, in the past, it was changed to reflect prosecutorial discretion. And now there's new prosecutorial discretion. I don't have an issue with that. I think one of the things that Aviv started with to keep in mind here is that there are a lot of good ideas in these guidelines. But when we put them in our framework, that that gives the other side rooms are really say there's a problem with this, there's a problem with how, with the reasoning here, that's not what this case means. And the other side can really attack it in a brief did not make all of it a little bit more suspect. And, you know, my reaction to this is, I think that the structural change is good, it makes sense. You get concerned by what's around it of whether that will be accepted and will be persuasive to the


Christopher Sprigman  14:11  

court. And any views on the DIS re emphasis on structure. And in particular how the presumption has been set in a number of ways. So I mentioned the, the lowering of the presumption to pre 2010 levels. Also the second part of guideline, one extending it where post merger. HHI is below 1800. But in where one merchant party has a share of 30% or more and the Delta HHI is above 100. Right. So we have some very specific changes and I wanted to get a sense both you and Dan might have a view of how that how that will affect enforcement.


Andy Gavil  14:44  

Sure. Thank you and and obviously I am sitting in for Nancy. See. I am not Nancy. I appreciate the opportunity. So two points I'd like to make one is any trust Law is law, it always has been law. But it's a law that implements economic policy. It's about competition. And so it is always going to be about law and economics. And it can be very difficult to fuse the two in the context of legal decisions. One way we do that in law is with presumptions. And presumptions are a very important way, not just an antitrust law across all law, of simplifying and fixing reasonable burdens without requiring proof of every little detail. And my view of where these new guidelines Go is an attempt to sort of restore some faith and presumptions, because over time, I agree with the point Eleanor made this morning, courts have become extraordinarily demanding of facts and evidence. One thing we haven't talked about is the degree to which the guidelines themselves are responsible for that, I think with with subsequent iterations of the guidelines and efforts to more perfectly kind of provide for the economic structure of arguments. Defense lawyers are very clever. And every time we added something new to the guidelines about oh, this is how you could better do coordinated effects. This is I could better do unilateral effects that was used against the agencies to raise their burden, case by case. And so the the importance of the core structural presumption faded over time, maybe as we occasionally still say, in law school, but not as often as we used to the agencies were hoist by their own petard. Okay, got that out. I feel good about saying that. But it was in this, you know, effort to more highly specify standards, the 1800. I think the 2010. Raising to 2500 was the exception. This is sort of a return to where it was, I don't think anyone accused Baxter in in 1982, of adopting 1800, and that it was far too aggressive. If anything, at that point, it was viewed as very permissive. So going back to the 1800s, seems to me to be restoring something that maybe we didn't have the best basis for changing in 2010. We could talk about what the rationale was better reflected what the agencies were doing. But it was like raising the speed limit and inviting people to go even faster. 1800 is based on a theory of six to five, numerical, you know, characteristics of the HHI. I'm comfortable with that being a better place where we should start looking more deeply at mergers than waiting until we are four to three, and three to two. So I think it's quite justified. And we should look at 2010 as the departure from the norm rather than this years.


Christopher Sprigman  17:54  

Dan, anything to add on that?


Dan Rubinfeld  17:55  

Sure. I've always thought of the guidelines as as doing a couple of different things. One is to just give a reasonably accurate characterization of what the agencies are actually doing. And another would be to, to maybe be looking forward and saying, Well, this is our aspiration, this is where we're heading now. And this is what you can see with respect to litigation that that follows. And so just focusing on the 1800 number for this characterizing what's highly concentrated industry, I think going back to that number is defensible, based on certainly based on the merger cases I've seen being brought. And it makes perfect sense. There are other parts of the and the Delta, the delta 100 sticks, although I have to say in the time I was in the government, we never brought a merger case where the Delta was Was anything close to 100. It was typically 500 or more. But But that raises a separate point, which is when firms are reading the guidelines and seeing any of the numbers like 1800, or the more questionable number, I would say, which is a 30% number, that's a different issue. They're going to take that as a signal as to what they can do and not do. So I think it's important to be conservative never had that regard. And with a 200 number. I think it's quite defensible. Some of the other numbers get me nervous, as I said. The other thing I just wanted to say is that the guidelines ideally in my view, would be ones that continue to improve on what was done back in 19. In in 2010 and even before then, and they're they're elements of the guidelines they really do that. Other elements for me make too big a break the parts that I'm now I'm moving ahead a bit the parts that that I think are important that are lie that I like are the parts where the agencies are taking on some of the phenomenon that that I didn't have to deal with back when I was in the government. And there are a whole range of issues. I've you mentioned the vertical, moving the vertical guidelines here. I think that's a real plus, I still have some questions about the exact numbers that are being used to utilize. But I think Ave Aviv is correct, in pointing out that mergers that have a vertical component have significant horizontal implications. And there's no reason that that shouldn't be considered. Together in the new guidelines. I should stop there, because I'm breaching in Virginia. But


Christopher Sprigman  20:41  

you, you you move to a topic that is a lot of interest in the guidelines. You know, the 2023 draft, as far as I can see, is, seems to be animated by an effort to reinvigorate vertical enforcement, there's a pretty traditional discussion and guideline five. But can


Aviv Nevo  20:58  

I before we go on? Yeah, sure. I mean, I'm happy to admit it. No, of course, can I just weigh in a little bit on? Before we move on to the vertical? I think a couple of things I just wanted to say. So first, let me just kind of touch on the issue of presumptions, because it was actually discussed a lot in the previous panel, it's usually more agreement here. Probably in response, I think Doug sort of laid out like, Okay, what's the economic intuition? The idea behind that? We didn't spend any time kind of in. In guideline, one there, the horizontal presumption is talking about that, because we actually felt this was a case where we actually weren't changing that much from 2010. So again, and looking at you again, because as it answered your original question, I mean, yeah, we changed the threshold, but I think change, we basically returned to what it was historically. And I think the intuition, which I don't think doesn't sound like there's a lot of dispute here, but I have heard elsewhere, like, Well, where are these coming from? Well, the intuition is very simple one. If I asked you, you know, nothing more about a merger, all you know, is one merger is attend to nine, the other is a three to two. And I told you, which of these two, should you be more worried about? Which of these two shoots direct more resources to look at? You'd probably say the latter. And I think that's kind of a general agreement across everyone. I mean, some academics are no, no, no, we can write a model in which you'd worry more about and to nine and three to two, it's like, yeah, I'm sure you know, if you give them enough incentive, they will find a way to write that model. But that's not that's an academic exercise. Right. I think actually, practitioners, we're all agreed, we want to sort of draw that on. And that's what we're trying to do with the structural presumption. That's what we've always tried to do. Now, where exactly do you draw that line? Like, we can pretend as if we have some magic model to spits out, you know, 1800. And instead of 2500, we don't, okay, they never had an 82 when they set the 1800. And that's kind of where, where we are, as to the 30%. One thing I'd like to point out, and I mentioned this to Danielle, at the end of the previous panel, if you heard the previous panel, you would have walked away probably with two impressions. 182 was radical, but radical in one direction. 2010 is radical. And another sorry, the current draft merger guidelines, a radical in another direction. Let me just point out one small thing, in terms of the structural presumption, the horizontal structure presented before we go to vertical, horizontal structure presumption, we are heading back to the 1982 thresholds of 1800. And not only that, most people don't remember this 1982 also had a market share presumption, it wasn't 30%. It was 35%. And there were a few additional qualifiers. Okay, but if you let me round, you know, 3035 in the same ballpark. So yeah, we're going back to the real, you know, radical, you know, whatever, liberal thresholds of 1982. So, let's put some of the things within context necessarily that I'm going to defend, you know, that 30% is something that we know strictly, but let's kind of put this within the historical context, before we get sort of too worked up of, you know, is it going to make about, you know, is this a radical change? The other thing to note is, it's again, going down, the question is, will it really matter? You know, are they really going to be a lot of cases are going to get caught because of the 30%. And not anything else? I doubt it. And that is something we haven't talked about. These are all rebuttable, presumptions, and rebuttable by exactly the type of economic evidence that we would look to say, in this particular case, this concentration is not meaningful.


Christopher Sprigman  24:27  

So good point. And I just want to ask Jennifer, so given that these are all rebuttable, presumptions, how to judges typically think of what it means to rebut them. Is this a huge hill to climb? Is it a modest hill to climb and just the steepness of the hill depend on whether the judge thinks the presumption makes sense?


Jennifer Milici  24:48  

Thank you for the question. And that was kind of a reaction I was having to what Andy was saying earlier that, you know, when you try these cases, you're coming into court and you're saying I've met the presumption, but you don't stop out there, I've never had a case or seen a case where the FTC says we've met the presumption and we sit down, right? You also say, we've met the presumption. But even if we didn't, there's substantial, head to head competition that's going to be lost and people are going to be injured. And even if that wasn't true, we have this other evidence of harm to competition. And so you're always putting on that entire case. That is that's part of your opening brief. That's part of what you're putting on your case in chief, you don't say presumption, I rest, right. So so this is always how the cases have been presented. And so I think that that's kind of an issue with how people think of the presumption I don't I don't know that courts have been holding the agencies to some really high standard of proof so much is they're evaluating the evidence before them, which includes evidence of a person that the presumption is met, and includes lots of evidence from market participants about what whether this merger is going to be good or bad for people in the marketplace.


Christopher Sprigman  26:01  

Okay, one more question on this Ania really directed toward you. So what I heard you say is, these presumptions are an attempt to balance a whole bunch of factors that are important. So one is, you know, how difficult to do we think it is to predict in any particular merger, what's going to happen. So we we can use rules of thumb to sort things into categories and treat them differently, at least, at least initially, based on the presumptions, you know, we have to think about the likelihood of type one versus type two errors, the cost to the economy and to society of the different types of error. So these are all necessarily in a sense, imprecise, predictive. And, you know, depending on your ideology, you may come to different conclusions. How should courts receive these changes? When when the agency does all this thinking, some of which is technical, some of which may be political? How should the courts receive the new thresholds?


Andy Gavil  27:09  

I think the sliding scale concept that you find in Baker Hughes and Heinz is a possible answer to that, that not all mergers are created equal. And that the presumption, we keep using the word as if it's one thing, right, but presumptions can be very strong presumptions can be weaker. In the views example, you know, the 10 to nine, nine to eight, that's maybe a weaker presumption than the three to two. And as Baker, Hughes and iron say this, the presumption can be much stronger, and then the evidence to rebut going to Jennifer's point, must also be a lot more persuasive before we're going to take the risk. And that's what this is its risk assessment of what are the, you know, most likely consequences. And that's why I think, as I said earlier, where the economics and the law are meeting, trying to do an assessment of risk, and especially when it's prospective, it is hard, you're making a prediction about what is what is going to be the risk after this merger of the effects we're concerned about. Damn,


Dan Rubinfeld  28:16  

I'm just gonna, just thinking back of an illustration of how these issues came before I can say now that I was the expert for the Department of Justice, when we were looking at the AT and T T Mobile deal. And the, it was kind of a fun deal, because the opposing expert for AT and T was my friend, Dennis Carlton. And we did a lot of work at DOJ and the work the work that I did, we both put together an analysis of market shares, and by market definitions was important. So we define both local, basically local geographic markets as well as the national market. And within both those markets, were able to sort of do the usual analysis of shares. But there were the market was differentiated. So I actually did a fairly complex econometric analysis that allowed me to make predictions, specific predictions to see what would happen in individual markets. Now, eventually, based probably more on the work of the FTC, which was John Baker was actually doing a lot of work there. The deal cratered. But what's interesting about it is I think it didn't crater just based on the 1800 numbers. But I think that was enough to that was gonna catch the attention of the courts. But it also cratered, because we had all the backup analysis ready to go. We had all the econometrics all of that ready to go. And interesting enough. Fiona Fiona was the chief economist at DOJ at the time, and She did something very interesting. She organized a meeting of the experts for both sides. So we had an I have a very nice dinner meeting with, with Fiona and Dennis and myself. And I think one other person where we talked about the differences and how the how the work would have gone. And then the end, the end sort of the structural presumption that underlay underlay the case, had a huge impact. I like to think it was going to be all the econometrics that I did. But none of that was was made public areas now, anyone can ask me about it. So


Aviv Nevo  30:35  

I just want to emphasize and I mean, those of you that saw visually, so I was nodding there a lot of the comments, I just want to make clear that the comments that we made here, and kind of the the comments were made is exactly I think the intention of how we see this moving forward. So even though literally, you know, the guidelines say well, we can bring a case under any one of these independently. So we could go only structure are actually only on guideline two, which is unilateral effects. I view that in a very high percentage, whether it's 90 or 95%, or something like that other cases, they will be completely the way that they've always been, which is yes, there's a structural presumption, that's going to be brought in together with a kind of more complete economic analysis, whether it's a merger simulation, that kind of metric analysis, or whether it's a win loss data or anything like that, whatever we have, that's how we got so in that sense, there isn't going to be a huge so why habits are broken up that way, because I think there are going to be a few cases on either extreme, where you can imagine going slightly differently. So I could imagine a case where we only go structural. Now we're not talking about case where the HHI is 1801. And the delta is one on one. I mean, we're talking a case where it's essentially a you know, either a merger monopoly or close to it again, I don't want to put a threshold there. So what I have in mind is those of you know, the Williamson drew case where I actually worked for the FTC, where the arguments that we had in court was with a post merger, the merging party would have 85% market share, or 60%. market share. Okay, you cannot think like, that's a waste of everyone's time. It's a waste of the agency's time. And more importantly, it's a waste of the court's time. Those are cases that should be easy to sort of let's go either case, 8560 85%, chair, 60% chair, really, that's not a merger, that should have actually made it out of the boardroom, let alone actually got litigate. So I think that's the point we want to simplify. The other extreme, is actually cases that would go without a structural presumption now, whether those will ever be brought, I don't know, but at least we have a pathway and why do we need that pathway? Again, this goes back to the modern economy, where sometimes to define a market to get the presumption, you might need seven adjectives, okay. That's usually a general rule is the more adjectives you need to describe the market, the weaker your case is going to be kind of to put things in a simple way. So we say, well, why don't we go to a World War only going to use two adjectives to define the market? Not seven, go broad, give up on the presumption and just go on the economic effects now. Well, that'd be successful. I don't know. Will you ever find either an ag or a commission are a litigator that's willing to bring that case? I don't know. But that's a pathway we're trying to open. Okay,


Jennifer Milici  33:25  

so he's clear litigators will bring all cases. Yeah, exactly.


Christopher Sprigman  33:28  

Eventually. So I wanted to move to vertical and, you know, again, it, the guidelines seem to start in, in five with a pretty traditional discussion of vertical mergers. And then I see there's guidelines making three moves. First is what seems to be a new path to proving vertical harm, which seems to be related to branch view in guidelines six, which includes a presumption against vertical mergers involving one party with a 50% Share. The second is a possible new entrenchment and extension framework and guidelines seven, which asks whether firm with a 30% market share is having its position entrenched or extended in some way by the merger. Then third is a concern with mergers that further a trend toward vertical integration that's guideline eight. So how would you characterize these tools? Are they new economic tools? Are they development of old economic tools? Are they specific applications of, you know, one or the other concern that's come up in the recent years with vertical enforcement? I'd love to get your view on that and then see if we can't get others to chime in.


Aviv Nevo  34:36  

Okay, so let me try. I mean, there's a lot in your question. Yeah, there's at least three different topics there. So let me try to just get one because otherwise, I'll be talking here for a long time, or even longer than I have, I should say. So let me just focus on the pure vertical so not the entrenchment trend. So there's two guidelines that one could say drill and more traditional, vertical so first is guideline five I've that in terms of layout really follows pretty closely to the 2020 vertical merger guidance. So what's new here? I would say, two main things. The first is that it's in these guidelines. Right? So that in itself is actually a big change of saying, look, it's the same framework that we use to evaluate horizontal mergers, we're going to look at mergers that potentially could raise vertical concerns. Okay, this might seem like sort of trivial, but it's not. And it goes back to actually a point that Ron made on the previous panel, when we think of the tools, the tools that are in the appendix, and elsewhere, we say it's the same tools are going to be evaluating the merger, right? It's a unified way to look at things. Okay. That's one the other change here inconsistent with that is to say, the way we should evaluate mergers that have these vertical effects is the same way that we evaluate horizontal mergers, which is to have a first you establish harm, then you start thinking of whether those rebuttal arguments, I don't necessarily mean just in court, in terms of burden shifting, but the way that the agencies even during the investigation, think about you first start asking, is there harm from this merger? What should we be thinking about? Right? And then we say is there offsetting effects and saying that will not lead to a lessening of competition? So in horizontal and sorry, in, in, you know, non horizontal deals, vertical deals, I think there's a large part of the antitrust community and the economic profession that almost has a presumption of efficiencies. They say, hey, if a vertical is merged, if a merger is vertical, sorry, if a merger merger is vertical, it's has a presumption that it's efficient. I think that's fundamentally a wrong way to think about things. Not to say that there aren't efficiencies. I'm not saying that. I'm just saying, we need to start by asking what is the harm that we're working with? And the harm in its base? It's really actually a horizontal concern, right? So Chris, you and I, if we are rivals, okay, that's one if I have several lifts, but if we were rivals, and they say, substantial rivals, and I get control over something that you need to compete, that's important for you to compete. You could say, that doesn't sound very good, right? I got a chokehold over you. Or you could use other kind of more colorful metaphors to express but I'm in a position to now impact what you do. And that does not sound good. Now, how do I use that? I could use that by raising your cost. Right? I could use that by denying access to you. Or I can just use it to sort of say, hey, you know, Chris, there's this thing I want to do play along with me. If you don't play, you know, I'm gonna start squeezing word hurts, right. But there's a few epsilon that way, it's the fact that I have control, I have the ability then to, you know, to squeezed, deny you the access, and that were rivals, right? So that's what five tries to do. It's a traditional tools, but casting in a different way. Now, if we establish that, then we go to what we call rebuttal. We get non rebuttal and presenting in court, then we go and evaluate, are there pro competitive arguments that will then offset this concern? So yeah, maybe it's a concern, but what it does is it makes me more efficient, and therefore I will compete with you more aggressively, and would actually increase competition. Okay. That's the idea. So that's fine. Now you might ask, okay, let's go to six. And what is the presumption there? So there? We didn't six introduces a couple of things. So let's break down into half. Let me take the first half, which is that 50% Share? Yeah. And then I'll deal with the second half when we talk about Yeah. So what is the 50%? Share, trying to do it trying to do exactly that? What I've just described, we need to work a little bit on the word, right. So if I told you instead of 50%, I told you, what a merger will do is will give one rival a monopolist position over something that another rival finds important to compete. Okay, that sounds a lot. We just said in five. That's something we should be concerned with. Okay, that's if you want you know, I'm looking out though, that's kind of the economic foundation if you want for that. Now, there was a few steps in there, right? I use the word monopolist instead of have, you know, control. Where do we get monopolist Bell and other places of law 50% is often perceived as kind of roughly a threshold for having a monopolist position. Okay. The other two key components are there that it's an important input. So it's not I have control over paperclips that you might use. But you know, surely they're not that important. That's the point I think we need to clarify. And the other important is the fact that Chris and I or whoever the rival were significant rivals, so it's not just sort of some random thing that some other person would want. It's a significant rival that I might then use to try to attract. That's the idea behind it. That's the logic behind I think we need to refine it because we definitely least need to explain it better, but we need to refine


Christopher Sprigman  39:54  

the quick question within that topic. So efficiencies when you are talking about rebuttal. How demanding Do you think it makes sense to be about whether these efficiencies are likely to eventuate? Like, 50% 60% 70% of me, I'm confused about this. And I think a lot of


Aviv Nevo  40:11  

people are. Okay. So let me take I think that ties to a general comment and a lot of things I know, I don't know if we'll get to talk about like, potential competition and interaction with that data entry. One thing to think of just conceptually, this goes both to the kind of the risk assessment framework, if we think that the framework and I think there's agreement from what I heard on the panel, that the framework is that we don't have to show harm with certainty, but there's a certain probability. So I don't know what that number is. Let me just make up a number just for the sake of your suppose we say, we need to show that there's a 10% likelihood of a lessening of competition and instead of 10, use whatever number you want, that's not okay. Now, remember that in the rebuttal, right, and whether it's efficiencies or not, you don't have to then show okay, there's 10% chance that the efficiency will be realized, You, in some sense, have to show at least 90% chance that they will be enough to offset the harm, right. It's kind of the middle. And I think that's kind of the part of the issue here. So obviously, we can't put exact probabilities. But that's why when we think through all of this stuff, whether it's efficiencies, whether it's entry, whether all the rebuttal argument, there is a higher threshold that comes from this idea that it's a probabilistic


Christopher Sprigman  41:27  

framework. So I want to pause on this for a second. And I want to ask the others on the panel. So Vive, one thing you said was, there's some people who believe that vertical mergers are almost definitionally going to be efficient. I think it's fair to say that that's a that's a view that has really been challenged lately. And I want to get the sense of the rest of the panel of two things. First, whether you think that challenge, the new thinking of vertical mergers has been successfully integrated into this draft. And second, and maybe Jennifer, specifically for you, whether you think whether you get the sense that judges are willing to listen to, you know, large shifts that are underway, about thinking about vertical mergers, something this big, right, so of course, like there was a Chicago revolution. So large shifts in the way we think about antitrust have integrated themselves into judicial thinking in the past. And it's a big question. But Jennifer, I'm curious whether you think it's going to happen in the future. So there's an economic question there and a lawyer's question. interested in your thoughts.


Jennifer Milici  42:31  

I'm happy to start. I do think one thing that if he said jumped out at me is that, you know, any time that you're putting something in the guidelines that a large part of the antitrust community disagrees with and thinks fundamentally the opposite. I think that that becomes a real problem for the acceptance of the guidelines in court. And, you know, the issue, and I think Brian alluded to this earlier, but the issue is that you got to bring the right cases, if you put out the guidelines as they are now and the first case you go to court with is one where you're, it's a vertical merger, and you're basing it on a 50% share, then then you're gonna get an opinion that says these are you're likely to get an opinion that says these aren't persuasive, that even the antitrust community disagrees with these. And then you really have set yourself up for failure with the rest of the guidelines. So that's, like kind of an initial reaction, anything that's like, that's in the guidelines, that is like, well, a lot of people fundamentally disagree with this, who are very smart and well respected in this field. I think that's that's an issue for including it in the guidelines and creates real risks. What whether courts are going to eventually agree with the framework, the basic framework of, you know, the ability and incentive to foreclose, I think we have a lot of cases in process right now that are considering that and, and we'll see. And it might be the kind of thing where you keep going at it. And eventually, you get the right set of facts and the right court and you convince the court, I don't think you can even support by putting it in a guideline. And particularly for something that's


Christopher Sprigman  44:10  

so unsettled as you think you convince them by bringing the right case.


Jennifer Milici  44:13  

Yeah, by bringing the right case with the right facts where they can see the harm that's caused.


Christopher Sprigman  44:17  

Yeah, it brings up a big question, which man we'll get to him.


Aviv Nevo  44:20  

Let me just add arguing it in the right way. Yeah, of course. So, yeah. And again, not to say, no, no, no, but I know for sure. The one thing to to note, it's, it's a it's one thing, it's like, Oh, we've been winning all these vertical cases, you know, you know, if it doesn't work, or if it works, why, you know, touch it, yeah. But if it doesn't work, you know, shouldn't we try something different? And that's what we're trying to do here. Again, it's not fundamentally different tools. It's a fundamental, different framing, and one that by the way, Steve Salah has been arguing for a long time, it's to say, we start from convincing judge and this goes back to something Rohan said earlier, we first need to convey against the court, that there's real harm. Right? And not to say we're not going to evaluate the potential benefits. We are. Right. And the courts are, right. It's just that if we don't fast that if we can't pass that first stage, we're done. So maybe we shouldn't even be in this business. And that's, I think, you know, I think it's just a matter of rephrasing the argument that we have to do if we want to start winning political cases. Yeah.


Dan Rubinfeld  45:25  

Can I let me just add, for me, for me, there's confusion here, because the guidelines can serve different purposes. One purpose is simply to characterize what the agencies are actually doing, which I've always thought is sort of a primary purpose of the guidelines. And if you if you explain clearly what the agencies are doing that will obviously have an import to the courts. What concerns me about portions of the guidelines, particularly vertical portion is, is it's forward looking. It's it, I read it as saying, Here's what we hope the agencies can do successfully when they get to court. But it's less a description of I believe that description with the agencies are actually doing and anytime there's a number tossed out like 50%. And that, at least to me, it's not well supported. I worry about that. I I do think I do think there are very strong arguments about why vertical deals can be problematic that the guidelines spell out and I think with just some rewriting that can be more powerful. Personally, I barely tell my students about double marginalization, because I actually think that that efficiency claim is often exaggerated, that they're often deals that can be dealt with, through contract more readily. And the agencies are right to take a hard look at it. So. So vertical foreclosure should play a prominent role. The other thing that confuses me a bit in the guidelines is, I know your example, I've even talked about someone being monopoly, the word what it means to have monopoly power to me is sort of is unclear at various points in the guideline. The word concentration is used a lot. When I read the word concentration, I actually think monopoly power. And and they should know, of either, you know, this, the courts have have cited various shares to to translate into monopoly power, and we could debate what the right number is. But I would have I think, leading into the vertical discussion, we had a little clearer clarification, what concentration really meant would be easier, because I think the vertical deals are problematic, almost always result from from firm that is has real monopoly power. And that can be clarified.


Christopher Sprigman  47:55  

And he just wanted to put the question to you whether you think the vertical elements of the guidelines have translated well, the new thinking about the harm of vertical mergers. Is there something there that you like, or something there that should be there that isn't there,


Andy Gavil  48:11  

you know, says, as the vif said, the incentive ability model carries over that's that's their, you know, the one that is sticking out is really new is the idea of a vertical structural presumption. Yes. And the courts have said, in vertical cases, they've said, there is a burden shifting framework like Baker Hughes that applies, but Philadelphia National Bank, not so much as it not at all. So I'm sort of intrigued by the idea of having some kind of vertical structural presumption, I'm worried that it'd be well articulated and supported so that it will be persuasive to courts. And as he was saying, I think whether it succeeds in court will be whether or not the full evidence is there, a test case is going to have to be a good test case, just show that the vertical conduct is likely to have the horizontal effect. So a


Christopher Sprigman  49:09  

good test case would be one that isn't right at the threshold, right, that one that's comfortably above the threshold, but one in which there's evidence that can be used to demonstrate to the court that this threshold is meaningful, in other words, that the kind of harmful effects that you see are related to the possession of market share that is somewhat close to the threshold. That's the case.


Andy Gavil  49:34  

I think you could you could imagine a case that fits well into both G five and G six. So the structural presumption is supported by the evidence of incentive and ability and maybe some bad documents that suggests we have the incentive ability because of our market share and because of barriers to entry or you know other other factors that would make it a good, a good litigated bull case. So that would be, you know, the best test case. And it's maybe not be one case, maybe it's going to be a series of cases to build acceptance in the courts. What are you fighting against? You're fighting against, you know, the footnote in Amex that says, you know, vertical presumed somehow better. And what has that meant? It's meant raising the burden of proof in vertical cases, and ignoring an obviously important thing that Aviv said at the start, that it's not about vertical effects. It's about vertical conduct with horizontal effects, we can we can turn to our friend, Justice Scalia in business electronics, who said that, that vertical cases are ultimately about horizontal effects. So you put together the right evidence, and maybe you can package one or more cases that give substance to G six by maybe linking it to G five,


Christopher Sprigman  50:55  

our time has gone by really quickly. And I wonder if we could just move to an antecedent question, which is market definition tools and frameworks. So, you know, looking at the guidelines, there's continuity, and there's some change. So the hypothetical monopolist test is still included. But it's now on the list of four means of defining the market. And it follows alternatives including the brown shoe practical and Disha, which was were mentioned earlier, the smallest Marcus principle seems to have dropped out. But the draft states, the agencies will challenge a merger that appears harmful in any market that's properly defined. So if you've had his 2023 change, how does it keep continuity with the market definition toolkit that we've seen from 2010? And are those changes likely to affect going forward the agency's enforcement agenda?


Aviv Nevo  51:44  

So thank you, Chris, for kind of pushing ahead to that point, because going back to kind of the original question that we can set up here, what's different here and the toolkit? In my view, that's actually in I'll talk about what we try to do with market definition is one of the biggest practical changes, I realized a lot of conceptual philosophical differences, and so forth. But at the end of the day, you look how the guidelines used, or they cited by courts, it's usually for the, you know, the detail, stuff that's right now in the appendix. That's usually what it's sort of cited. And that's why what we're trying to, you know, to do here, I think, as potentially the most important ramification so let me against that back. Looking at issues, where did we, you know, agencies find a lot of times we lose cases, is on market definition. Right. There's actually, you know, litigators. I don't know if Jennifer agrees. But there's a there's kind of let's say, Well, where are we at, you know, where the government ends up losing cases is exactly on the market definition. So we tried to do a couple of things here. First, I already mentioned, we tried with guideline two that goes directly to competitive effects and say, look at cases where the market definition is too hard, we go directly to competitive effect. The language is there in 2010. But I think we sort of highlighted emphasize that even more and really made that very clear pathway to go, whether we go that way. Who knows. But that's one possibility. Specifically, though, with market definition, we also made a couple of, you know, subtle, but I think very important changes. So one is in the main document, we now really talk about there's four ways there, but really, one is about establishing dominance. So it's really three ways in which we talk about defining market definition, all of which, by the way, again, are in 2010. But they're laid out a little bit differently. So the first of these is direct evidence. Okay, we could say when there's direct evidence of competition, we could say, right, so if there's we have direct evidence close to you and I are competing, that means we're competing in some market. So even if we can name that market, we satisfy the any market requirements, saying there is some market out there in which we compete, do we really need to put a name to it if the evidence of direct competition is substantial? So that's the first. Again, it's there, the elements of the are in 2010. But I think we've kind of run a little bit further. The second is to say, second way of defining market is using the brown shoe practical indicia type of answer again, it's in 2010. It's in the case law, it's been done usually has been viewed as defining a broad market and one that the market that the the agencies like to walk away from it, but we actually say yes, that is a legitimate way to define a market and I'll play in a second how we see that being used potential. Okay. The third is the traditional hypothetical monopolist. Right. Now, one could sort of say we're downgrading the HMT their political monopolist, as by now saying it's one of several other methods. By the way, in the past, we kind of say well brown to practical indicia that can lead to the HMT and HMT is the ultimate test hope. The way the reason we've done this is that thinking the other way big change here. And it's a change that, again, the seeds of it are in 2010. But we're kind of building further into, say, the law requires us to define any market doesn't require us to find the best market doesn't require us to say, you know, we have to show that there's no harm that there's no harm in any and all the other markets, all we have to do is to find one market, which there is harm. So we're going to run with that any mark. And obviously, we can't just define any, you know, just pull out of thin air and market it does have to satisfy certain criteria. And those are the criteria outlined by those three principles. But once it does, let me then say it's a kosher market once it satisfies one of those criterias. Once we have a kosher market, we then have to show there's a lessening of competition in that market. And that's when we go to any one of the guidelines of how we show them. Okay, so the idea is, if we prevail on that if we have a kosher market, that we show harm, we've met our burden, parties can come and say, Hey, wait, there's a better market. Right. And in that market, there's no harm. Because guess what, any merger, there's a lot of markets where there's no harm. Right? So the point is here, can retail sort of court all we have to show that it's a kosher market, so that can be attacked by saying a market does not satisfy the HMT? Does that satisfy the practical indicia? In which case? You know, it's not a kosher market? Okay, that's one, or they can say, yeah, you have a market, but there's no harm. And what we're trying to get off the table is an argument that I think logically makes no sense. Which is, yeah, there's harm in your market, but there's a better market to look at. We're trying to get that off the table. And because of that, we're willing to say, a lot of times we'll fight again, traditionally, the a&p battles have to make sure we have a market, especially if we're going to rely on structure. But in cases, we're going to walk away from structure, we're going to say, hey, we get to define, you know, we can go abroad, we're pretty sure it will pass the HMP if we go abroad. But that's kind of, you know, an alternative way to go. So that's kind of the logic of what we're


Christopher Sprigman  57:10  

trying to say, I want to ask the rest of the panel one way to look at this as as consistent with the spirit of 2010. In other words, it's an outgrowth of what was kind of imminent in 2010, but maybe not explicit about the flexibility of market analysis. Another way to look at this is as it's finally facing the question, an important question of, you know, what are we doing when we're defining markets? are we defining a market or the market? Right? And what I'm hearing in this discussion is that the draft is pretty firmly on the side of we're defining a market not necessarily the market. Is that going to be the way this turns out? And, you know, what will courts make?


Andy Gavil  57:50  

I missed the last part. But I know there's another flood warning.


Christopher Sprigman  57:54  

Sorry, what a court's gonna make a bit if this is a shift to defining a market anymore.


Andy Gavil  58:00  

So I have this distinct recollection, maybe someone will confirm or or refute this, but the 2010 guideline, initial draft tried to say, market definition is not necessary to every case didn't say that. And then they backed away, because there was so much pushback to that. Market definition is not a problem just for mergers. This is a problem for antitrust law. Market definition is the hill on which plaintiffs including the government go to die, and defendants are going to protect that hill, because it's proven to be a very powerful tool for pushing back. It's satellite litigation, like standing in private cases, where you wind up litigating this esoteric question of what is the relevant market? Has the government met the burden of the relevant market? And I was a little bit sorry that in 2010, we backed away from the idea. And I think that as Chris's question puts it as correct. These guidelines are trying to sort of take that one step further and essentially, say, market definition in the way that we are doing it in this sort of formal way that courts are doing, it is not going to be necessary to every case, when we have other indications of loss of competition. To me, that's no different from accepting the quick look concept that sometimes we have more direct effects evidence, and we don't need to and the Court has said it in the in NCAA and Indiana Federation that, but market share analysis is a surrogate, and when we have the direct evidence, we don't need to do it. I would like to see that at least for horizontal mergers more firmly established. Again, it's about the right case, that and I think it may be harder to do prospectively might be easy to do, for obvious reasons with a concentrated measure.


Christopher Sprigman  59:53  

So Jennifer, our judges expecting to see the market so or would they be open to the idea that you know The government chose a market that's defensible and the defendants have different views. But you know, if the market is defensible, that definition will control.


Jennifer Milici  1:00:08  

Yeah, I mean, I mean, the government has the burden of proof to prove a market and to prove the relevant antitrust market for that case. So I think that idea that you can kind of forego that and do something else is really contrary to the case law and is going to be a very difficult position to take. One of my concerns, just putting back on my, like, agency litigator hat is is that the clarity of it's the HMT that we use was really helpful in winning a lot of cases. And, you know, when you have when you've kind of elevated brown shoe to the same, you know, kind of analytical weight, there are a number of cases I can think of that the agency one that it would have lost if in, we haven't gotten the chance to talk about it. But when we, when you're adding also into this, this idea of perceived potential competition and people just outside the market that are that are constraining people in the market, when you put those concepts together and say, oh, yeah, and it's brown shoe, we're going to look at your documents and see who you think of as your competitors. I think that puts the agency in a difficult spot. I think, I think the clarity of saying we've got a market that meets the HMT is is helpful, not not harmful to the agency. And I think this idea that courts were just doing this, you know, technical market definition, and that that was bad for the FTC, I think, for the agencies, I think is a little bit wrong. I think courts have been hearing, you know, it's the same trial in which everybody's presenting the competitive effects evidence and is presenting the market definition evidence. And at the end of the day, all of that is being considered together. When the court says, Actually, I think this is a broader market, I think I think the agency didn't meet its burden of proof. It's not like they're doing that in the in isolation before hearing the competitive effects of it. So I think I would be concerned if I was still an agency attorney doing this, that this, setting it up this way gives defendants really a lot more to work with to fight back on on.


Christopher Sprigman  1:02:25  

So Jeff, can I ask you about that, like the position of the lawyers at the FTC actually litigating cases versus the guidelines, you know, the rule set down there? So if you're in that position, and you see a case where like, we got to clean story on the hypothetical monopolist test, and you know, a brown shoe story is never clean? Right, a brown shoe story may be very helpful in the right case, but it's definitely never clean. Is is the is the culture of the litigators at the FTC just said, we're gonna just cut to the chase, right? We don't, we're not bound to the hypothetical monopolist has, we're not limited to it. But it's going to help us here. And we're just going to do what we need to do to get through market definition successfully.


Jennifer Milici  1:03:02  

So in every case that I can think of sitting here right now, I wears brief, both you breathe brown shoe and you breathe and breathe HMT. But at the end of the day, what when the courts making a decision, you say all, when you get there, and you say everything's pointing in the same direction, the harm to competition evidence, the customer complaints, the evidence of head to head competition, and the HMT are all pointing in the same direction. And that's ideally the position that you're in when you're in court. And I think if you're elevating this over by, you don't need brown shoe, and that's now more important. I would be concerned about that


Dan Rubinfeld  1:03:42  

gut exam. I was just gonna say, I have some experience just having served as an expert in a number of merger cases. And a couple of points just struck me one is I'm always very interested in whether whether I believe that competitive effects of a deal will be and if I think I know what the competitive effects are based on whatever analysis I've done, I'm there will be a market definition which will tell allow me to tell the story about competitive effects. And that market definition hopefully will be supported by other documents and evidence from from witnesses, but relying on that that alone without doing something like an HMT exercise, I think it's dangerous just because they're they're always going to be documents and people, particularly salespeople who will give very different perspectives. My experiences the salespeople define markets really narrowly because they only looked at the two closest competitors. Pricing people look at markets very broadly, and probably too broadly. And I can just think of two quick examples of where this mattered. without going too much detail. I was involved in a serial merger many years ago where I was the winner. This for the party's against the state of New York and that in that particular case, and the entire case was litigated about market definition was the market all ready eat cereals are just adult cereals. The key testimony being that that adults wants, once he ate good cereals and still secretly like it. So, but there but the but the other experts and I fought about the econometrics of how to apply their hypothetical Martin INNOPOLIS test. And there was also a court appointed expert. And ultimately, I think the judge, the judge in that case is very thoughtful, combined all that evidence. But without the without the econometrics, I don't think the court would have been very comfortable about that. Another example that came to mind is I was involved for the parties working on the on the United continental merger, and there was a trial brought in California to try block the merger. And the key key issue in the case was, was the market narrowly defined to be the sort of top three or four airlines or the include some of the other airlines. And that could have been a big deal in the case. The interesting part of that litigation began, I did all the econometrics, I'm think the kind of metrics which clearly supported a somewhat broader market, and then the then the plaintiffs plaintiff claimed in the case. But I have to confess that the key the winning the case was when the named plaintiffs in the class case, came forward and admitted that they flew on the airlines that were not allegedly in the market, the plaintiffs claim. And needless to say, this got the judges attention. I'd like to think it was my econometrics that won the case, but I'm not so sure.


Christopher Sprigman  1:06:46  

Yeah, that's the fact that tells I want to get Andy in here.


Aviv Nevo  1:06:49  

So I just asked you, I actually really liked to hear the answer to your more than, like, present view. So yeah, I think that I'm not quite sure when I heard you. I mean, I heard you say that you don't like what we did. But then I think all the examples you gave are examples that I will use to support what we did. So I'm just a little bit confused, because I thought what I heard you say is it using brown shoe, we'll end up with markets that are too narrow. And I think our underlying kind of our thinking is that actually brown shoe will typically lead to broader markets, which if we go to competitive fats under a guideline to like Okay, let's go there and talk about competitive facts. And, you know,


Dan Rubinfeld  1:07:26  

I would maybe it was unclear I would go both ways. I would say if you just use brands shoe, I could go either way I can think of brands shoe leading me to narrow markets may have suggested that but I agree, it can also lead to be a very broad markets. So i That's why I'd like to try to put more weight on the HMT whether or not it gives you an American Lancer, I think it provides you a clear framework. So I'm a little concerned that, that the discussion is too broad, actually, in the guidelines and just could be tightened up.


Christopher Sprigman  1:07:56  

I wanted to get Andy and Andy on market deposition. And then also I want to talk briefly about potential competition and then get to questions. So Andy, just


Andy Gavil  1:08:06  

listening to our discussion sort of begs the question that I think one question the guidelines are trying to get at, which is, is there a simpler way to do this? And we keep coming around, and I did it myself? Well, combined G five and G six and listening to Jennifer talk about I mean, the government has been forced to litigate fully every case. And the question is, is there some relief for that? Is there some way Is there a quick look version of merger analysis? And I think in some sense, the guidelines are trying to find that as as a way of defining a space where you don't have the belt and suspenders every case, and it shouldn't be that part. There should be some cases that are easier to prove. I don't know that we've answered that question today. But I think that's that's lurking, as we start to describe what it still takes to win. And maybe these are big cases, there's a lot at stake and it warrants the use of resources. But that's still to me a lurking issue.


Christopher Sprigman  1:09:12  

Okay, so let's talk about potential competition before getting into questions. So the draft, as far as I can tell, seems to move to focus on the from the risk, the post merger risk to the risk of entry or the perceived risk of entry and perceived potential competition cases, again, away from the assessment of competitive effects following entry. So is that a big change in terms of the theory behind potential competition cases? And is that guidance going to help courts to see these cases clearly?


Aviv Nevo  1:09:49  

The so I'm not sure I have an answer to all of them. Let me touch on the potential answers. I have some nascent for as perceived potential answer, yeah, exactly. So you got it. So definitely guideline guideline for the potential competition is gonna be something new. I think there was no, I think that's one have to be careful because there might have been some footnotes somewhere in 2010 that hinted at it. But I think that is a new a new idea. I think you know, the layout and the ideas sort of behind that are things that actually come from a lot of what was argued and basically accepted on the legal side and the theory side by the court in meta within. Right, we talked exactly about this doctrine, this obviously a case that the FTC lost, but we lost on the fact that the court actually accepted that theory, for the most part. So that's kind of the what's the idea there, I wouldn't say that it's not based on competitive effects. It is based on competitive bid, but sort of saying, this is a potential competition, one that hasn't, you know, the competition hasn't actually been there. So you can't actually rely on market chairs. You know, it's going to be very hard to do econometric analysis, because this is, you know, mean, you could simulate a date of here's what it might be, and then do econometric analysis, but good luck convincing a court that that's actually meaningful. But that's, I think, kind of the the idea is to lay a framework of saying, look, there's competition, we think it's about to happen. And then we lost by the merger, whether it's actual competition, right? have, you know, you're acquiring me and but for that position, we'd end up butting heads and


Christopher Sprigman  1:11:36  

competing, and we hear as other competitors. Right. So they seem to think,


Aviv Nevo  1:11:40  

well, that's a perceived part, right? So there's just a rep potential competition, or that could be an element that you might not actually have plans to enter. But just the mere fact that, you know, others think that you might enter might actually change the other folks in the market might think that you might enter would change what they what they do. That's kind of the idea behind the paradigm, I think the real issue would be here as well. How do you prove that? How do you get and I think that was the what the, you know, the FTC faced I mean, it was before my time the FTC faced and meta within was, how do you get what's the fact pattern that you'd be able to convince the courts and okay, this is not a theory, not just a theory, but ones that are practical?


Christopher Sprigman  1:12:23  

Yeah. So Jennifer, you had you had seen some link between the perceived potential competition theory and market definition. And it was was interesting when you articulated it. So could you just talk a little bit about that?


Jennifer Milici  1:12:36  

Yeah, I, to me, personally, this seems like one of the most potentially damaging things in the guidelines from from my point of view. And to be clear, I think there's a lot that's great in the new guidelines, and I really respect the really hard work that folks did on them. And there's a lot that's really good, but But to me, this is one of the most dangerous things because you can't the guidelines right now say that a perceived potential competitor restrains the companies in the market, and incentivizes them to offer lower prices and higher quality goods. I don't think you can say that in one part of the guidelines, and then say in another part of the guidelines, they're not part of the market. You don't I don't think you get to do a heads, I win tails, you lose on that. And I think when I think back to cases that we litigated either fully, or we brought complaints and people abandon, there are ton of cases where the emerging party said, Oh, well, you know, Google might enter or so and so might enter. And that constrains us, and the agency rejected that argument. So they're not entering and they're not part of the market. And I think, once you've said that, actually, the perceived potential competition is a real constraint on people in the market, that you've what you've done is you've you've kind of destroyed the hospital merger program, right? Because there's always a big university hospital just outside the market. There's always somebody that documents internal Doc's gonna build facilities within the geographic area. Right, exactly. So I think that's, that's my concern with it is that I don't, here's just an internal inconsistency from my perspective of to say they are real constraints, if they're a perceived potential competitor, and then elsewhere to say this or suggestion.


Aviv Nevo  1:14:23  

Let me just get the dress because I sure I think laid the seeds for this in the comments I made before about we bought so first, thank you, it's, you know, it's very important a part of going out here to actually highlight things that, you know, maybe things that we haven't thought about, because, you know, defense bar is actually very good at finding ways to Hey, you said this here and that there and using it against the agencies. So, while I agree that there's a risk there, okay. I don't think there's an inconsistency. But again, the question over there, how will it be viewed in court and the inconsistent goes back to what I was saying before is this asymmetry Now that you have between a potential risk of competition, right, so if you say, sorry, a risk of a lessening of competition, right? So if you basically say, let's say it's a 10%, I'm gonna go back to the same example of a lessening of competition that says that you don't just need a 10% of potential entry, you need, basically over 90% to offset that. Right. And that's kind of the asymmetry here. Now, whether that will be understood and accepted, I don't know. And even if it is, you could say, okay, it doesn't completely take that argument off. It's just a question of, now, when you think of this potential entrant, or the you know, the impact that it has isn't high enough, right? There's a higher threshold for the efficiency than there is for the lesson or competition again, and it goes directly from the fact that it's not about certainties about probabilities. And key in it, by the way, is the fact that when I say probabilities, I'm assuming that probability, I don't know if it's 10%, but less than 50%. Right, because otherwise, the whole math turns around. So that's, I think, the logic of it, you know, there is a risk. I admit, that's,


Christopher Sprigman  1:16:09  

yeah, I mean, I think you're right, that the two things are linked, they're not symmetrical. And the question is whether judges are going to see that because I do think this simple linkage argument is going to have some appeal. So why don't we take some questions? Jim,


Speaker 5  1:16:22  

you're gonna share the mic again? I have a question. It's almost a comment about agency enforcement strategy. The first I feel like this just kind of editorial comments, I feel a potential competition does introduce all these contradictions and challenges, and have an agency and a lot more successful, challenging, nascent, with a question of basic competitors is that like the Microsoft case, like the visa plan, or the court seem to see it a little guy who become more dangerous, later killed, that feels like a much more successful kind of thing. They sort of esoteric, weird theories about how someone was constrained, and they're even hard to teach. The names are bad, the labeling is weird. So I just kind of encouraging. I don't know if I'm talking to you right now, but being the most profitable mind. And then the question, a lot of panel, you know, seem to have excited in the vertical area of breakthrough, a threshold postcode threshold case, something like that. And I can see academic appreciates that, but wouldn't it be better to win a vertical case and choose one for the big fat monopoly seem to being abused vertically, maybe a very popular case, maybe a ticket seller, for example? Hypothetically, trying to get like, a 51%, threshold and affinity. So


Aviv Nevo  1:17:57  

a few things. So in terms of potential competition, the one potential competition case it was litigated, and I was the DOJ expert on it was a bid for logics. And, you know, it was potential competition of those actually evidence of actual competition, yet the court somehow got caught up in a footnote and an Amex that was the whole thing around visa plan. It's an interesting one, it came right after that. I think the DOJ learned lesson from Sabre for logic, it wasn't ever litigated. It was abandoned, was actually an interesting case. Because it's, I mean, there might be others was actually case that at section two, claiming it, in addition to a section seven. So look, I agree with you that out of the potential competition, I think the more interesting one is the actual potential competition as opposed to the perceived potential competition. I think that's what the potential competition does. I mean, we can talk about where it might be done. In terms of look, just going back to the vertical look, I agree with you. And by the way, one of the things I worry about in my guess is maybe that will end up changing the thing I worry about the 50% is not anything that was discussed here. It's actually the opposite. It's not we're going to try to bring a case of vertical and you could sort of see the defendants are saying, Okay, you didn't define because you don't remember on under guideline, five, we don't have to define a rule out the related product market, just say what the related product is. Right? But when you want a market share, now you need a market. So I could imagine defendants coming and saying, Okay, now let's define a market. And guess what, you're not even close to 50% in that market. You're only 10% Right? You're so below this, you know, yes, it's not a safe harbor, but you're so below, you know, what you said that was already radical, you know, good luck litigating that case. So that's going to actually my concern more with that structural threshold on the vertical but I agree with you, that's what we're trying to do is let's try to change things and find a way to win finally a vertical case that Daniel


Speaker 7  1:19:59  

have asked about what's new. Because so much of this discussion, whether it's on verticals or on potential competition is about free works in the law for decades, right? potential competition is not just in 2010 to the first sentence of 2010. And the FTC and DOJ have been brewing potential competition cases for a long time. Long before Steris. Ali boy, Yamaha has decades. But one area where 2023 seems to try to break new ground is guidelines on the vertical and let's set aside the structural presumption, I think it'd be really cool if we could implement guideline five traditional vertical framework, structural presumption. And I think it was the single market because then you have a situation where I got 50% market share. I looked downstream, I see oligopoly, I want to break it up. So I buy a minnow in order to disrupt competition. And now I've run into your presumption of anti competitive. But the idea of that presumption to approximate five is really interesting. But there's a lot in six other than that structural presumption. So the question for anyone who wants it is, what is the principle that guidelines six expresses? That is not channeling?


Aviv Nevo  1:21:20  

So let me take that because unless anyone else wants to proceed, give the perception of what they what we actually wrote. So. So, I mean, there's a question as to, you know, what it is that we're trying to sort of do here, let me sort of, you know, jump over that and really go into so six really has two parts to it, as it kind of alluded to, or at least the first part is the kind of I call a static, you know, presumption. The second part talks about transport, transport, vertical integration, among other things, but that's a key part of it. So that's the part we never really got to which is I would put together that, together with I'll use numbers and I'll tell you what they are in a second guideline eight, and guideline nine. So guideline eight is the general trend towards concentration, not just vertical, horizontal. And guideline nine is one saying if there's a series of acquisitions, that the agencies will actually evaluate that potential evaluate that is one in a series, here's a series by one acquire, that's kind of different between nine and eight, I would put all of those under one, you know, one title and maybe actually will end up in the final we'll see of dynamic competition. And the idea there kind of, again, let's step back from, you know, the specifics. The idea there is actually I think one that's totally non controversial, right, you can allude to old case, law, whatever. But it's actually one that I think is completely in the mainstream, which is, when we evaluate competition, it's not just about taking a snapshot, it's actually looking in the context of where the industry is going, or where it might be going. Right. And again, we can refer to old case law as kind of you want to refer them, I think that idea is not really a controversial, right. And it can go by the way in in different directions, right. I mean, it was a lot of discussions of airlines. If you go look at the US Air American complaint that I was at DOJ at that time, and took a big part of it starts by actually showing a graph of how the industry has been consolidated. Going back, you know, for a decade even before that, by the way, I find it ironic that here we are, again in October talking about an airline merger, and a government shutdown, exactly as we did in 2013. But But anyway, but that's kind of that's the the idea that all of these are trying to do. details still need to be worked out. But that's I think what we're trying to get at is to sort of say, Look, you need to look at dynamics where the industry is going, whether it's heading towards a general direction or lessen competition, we should look within that context. Or maybe even the opposite looking at entry. Suppose it actually you see an industry that right now, it's still, you know, fairly concentrated and using thresholds, you might be worrying about less than a competition, but there actually seems to be a lot of new entry, a lot of dynamics going the other way. That would be an argument against just focusing on a structural presumption looking at that dynamics. That's what we're trying to do, but details I think need to be worked.


Christopher Sprigman  1:24:13  

We got two people in the queue, Edie and Richard Ed, your second wave, Ed and then Richard.


Speaker 8  1:24:23  

I am pleased not to find them. So I did a ctrl F search for m h h i. And it turns out given given the discussion in the last three years, it would be appropriate here to see the common ownership, common ownership debate. I was quite pleased to see that that guy who quote really restates what I thought was the policy and has been the policy but in light of that, in light of that debate, I take it the rest of it of decision not to embrace common ownership approach either The threshold is for works under HHI, or


Aviv Nevo  1:25:14  

it's not not right. Richard,


Speaker 6  1:25:20  

I was talking by somebody that we've set aside. To clarify, you mentioned that if people find some difficulty in a given market, that somehow our lives showing that extended, it doesn't have any difficulty, I'm puzzled by the fact that you have emerged with multiple switches operate simultaneously in multiple markets. What do you suppose to do if the concentration ratios go up in one market? Unacceptable? And in another market, they start to go down? How is it that you kind of distinguish the two halves, when you're doing this is that to be taken into a case of legality? One was to be taken in the case, when you're thinking framing the particular record. I tried to write on this students, I can never quite figure it out years ago. So definitely some clarity.


Aviv Nevo  1:26:10  

So I think you'd get, you know, your speakers in an economist tell you my understanding of how the legal framework is right. And the idea is that if there's a harm in one market, we generally don't do offsetting of saying, Okay, there's benefits in another, we'll do net things out. And economist, of course, will say you shouldn't do that you should look at the deal as a whole. And that's what you should do. And we can talk about markets or the different geographic markets.


Speaker 6  1:26:38  

I'm not an economist by trade. But it seems to me it's perhaps the most set in both deals and net positive, or you either want to zoom in on the one hand, or figure out a way to exercise the neck negative on listening and keep the positive part going forward. So one of the things that I think you did discuss their own today, was the question I'm gonna remedial state is the only thing that you do is to block a merger to fail some particular debt, or to try to figure out how to make a more complicated remedial structure. So the seventh?


Aviv Nevo  1:27:10  

So, little bit, I think, in what you know, your comments, implicitly, you'd like economists to rule the world, which I generally favor, because you'd like to follow economic principles. So I'm not going to argue against that. But my understanding, and again, I'll let the lawyers in the room speak is that, you know, if there's a harm in any market, that's after you don't do the opposite. Let me just complete. That's it. Now, that being said, I can tell you from now experience of being in both agencies. There is discretion. Right. And I think look, I mean, let me just go again, this is something that was at the time when I was DOJ 18. T, DirecTV, actually, that's one we can talk a lot about what was done investigation because it was actually filing at the FCC by the party. They had a merger simulation on a fairly complicated one, that their own merger simulation model, the party's own merger simulation model, show that in some geographies, some dma's, there would actually be harm others that would be benefit a net would be beneficial. Okay, so the DOJ let that one go through the FCC, you can actually read kind of their decision, which really talks about that and did a balancing act. Just by inferring by the fact that the DOJ did not challenge it, even though it had right there the evidence by the party saying hey, there might be harm in this particular market. That they did some offsetting effect at their discretion. I thought that's I don't think would be a crazy inference. Based on


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