FTC's change to policy could make for healthier mergers

The Federal Trade Commission's change to a decades-old merger policy could tip the scales toward reducing monopoly power, one expert argued.

Last week, the FTC rescinded a 1995 policy for "prior approval and prior notice" provisions for mergers. The decision means companies that have proposed mergers the FTC found to be problematic will need to give the FTC prior notice and receive prior approval before they proceed with any future transactions with like companies.

The FTC has been facing mounting pressure to increase scrutiny of mergers that give more power to already large, powerful companies. This decision removes some of the burden from the FTC to prove that a merger is problematic, placing it, instead, on the companies seeking the merger to prove why it's not.

Robert Hockett, a law professor at Cornell Law School, said although the move isn't "massively game changing" for any merger currently, it's a change that could be significant over time.

"After 20 to 30 years of what amounts to a kind of presumption in favor of what private sector firms want to do with a kind of burden on anybody who is suspicious to show why we ought to be suspicious, there's a change in the nuance of that presumption," he said. "It's not like it's going to switch to a presumption of suspiciousness or nefarious purpose or market-harming behavior, but it is going to be something closer to sort of neutral."

Hockett said it's a "sober realization" that a significant amount of merger and consolidation activity over the last 30 years has concentrated markets to the point where efficiency gains that come through those companies coming together might be outweighed by the resulting growth in concentrated market power. He described market concentration as a balance between allowing mergers that can create efficiency gains for companies by, say, reducing product production prices and rejecting mergers that could create monopoly powers.

Going forward on a case-by-case basis, [mergers] are going to be looked at, not with this, sort of, assumption or presumption that they're probably OK.

Hockett argued that over the last three decades, the balance between the two has been off, leading to a concentration of market power seen in a handful of large, powerful companies today. The FTC's move to require prior notice and seek prior approval will help reestablish that balance, he said.

The FTC's decision doesn't prevent mergers from happening, Hockett said. Rather, providing prior notice and seeking prior approval may help stop bad mergers and acquisitions and prevent anticompetitive markets in the future, he said.

"Going forward on a case-by-case basis, [mergers] are going to be looked at, not with this, sort of, assumption or presumption that they're probably OK, unless somebody can show some dramatic harm," Hockett said. "Instead, everything is going to be looked at on its own merits, rather than under some, sort of, presumption. I think that's very healthy."