Merger Efficiencies at the Federal Trade Commission 1997-2007

Abstract

The Federal Trade Commission and the Department of Justice significantly expanded the efficiencies section of the Horizontal Merger Guidelines in April 1997. The revisions broadened the scope of the analysis and clarified the framework for determining when claimed efficiencies should be recognized in merger analysis. This study reviews how FTC staff have treated efficiencies claims in the following ten years, considering 186 mergers in which the Commission staff completed a second request investigation, between April 1997 and March 2007.

We designed this study to determine what types of efficiencies claims parties raised and how staff treated each type of efficiency claim. We analyzed the Bureau of Competition ("BC") and Bureau of Economics ("BE") evaluations of the parties' efficiencies claims, and compared those evaluations to each other. These analyses allowed us to make several general observations concerning the staff evaluations of the efficiency claims.

1) BC and BE staff analyses, considered together, did a thorough job of acknowledging and considering the parties' efficiency arguments.

2) In general, little appears to have changed with the types of the parties' efficiency claims or the staff's treatment of them during the ten-year period studied.

3) Both BC and BE staff did not make conclusive recommendations concerning a majority of efficiency claims they considered.

4) In general, BE staff were more likely to accept efficiency arguments than BC staff; BC staff were more likely to reject efficiency claims than BE staff.

5) Staff were as likely to accept fixed-cost savings as they were to accept claims of variable-cost savings. Both staffs seem more likely to accept dynamic efficiencies and more likely to reject generic efficiency claims than other types of efficiencies.

6) Staff were more likely to agree on basic verification and merger-specificity issues than concerns associated with validity, fixed costs, and pass-through.

Keywords: Federal Trade Commission, Efficiencies, Mergers, Antitrust Policy, Cost Savings, Merger Guidelines

JEL Classification: k21, l40