THE HORIZONTAL MERGER EFFICIENCY FALLACY

57 Pages Posted: 25 Jun 2024

See all articles by Darren Bush

Darren Bush

University of Houston Law Center

Mark Glick

University of Utah - College of Social & Behavioral Sciences - Department of Economics; Parsons Behle & Latimer

Gabriel Lozada

University of Utah

Multiple version iconThere are 2 versions of this paper

Date Written: June 16, 2024

Abstract

The Department of Justice and Federal Trade Commission Merger Guidelines

(the “Merger Guidelines”), including the latest proposed revision in 2023 (the “New

Merger Guidelines”), have continued to perpetrate what we call in this Article the

horizontal merger efficiency fallacy. The fallacy arises because in the Guidelines the

term “efficiencies” has become unmoored from its foundations in economic theory and

has been reduced to the business school construct of cost savings. We show that cost

savings can only be considered universally socially beneficial by acceptance of what is

termed “the consumer welfare standard” (antitrust) or “the surplus theory of welfare”

(economics), a theory that has been discredited and abandoned by welfare economists.

In economic theory, efficiency means Pareto efficiency. We explore the various

attempts to tether the cost savings definition of efficiency to Pareto efficiency and

explain why these attempts have failed. We conclude that there is no sound way to

theoretically reconcile cost savings with the economic meaning of efficiencies. We then

move beyond the efficiency fallacy and show how modern welfare economics can be

used to integrate congressional antitrust goals into the New Merger Guidelines. This

requires abandoning the unsupported “standard deduction” for efficiencies and

replacing it with an evidence-based assessment of how a specific merger under review

potentially impacts congressional antitrust goals. This change renders the present

efficiency rebuttal section of the New Merger Guidelines superfluous, and we provide

specific reasons why this section as currently drafted is flawed and should be

jettisoned.

Keywords: mergers, efficiencies, industrial organization, antitrust, merger guidelines

Suggested Citation

Bush, Darren and Glick, Mark A. and Lozada, Gabriel, THE HORIZONTAL MERGER EFFICIENCY FALLACY (June 16, 2024). Available at SSRN: https://ssrn.com/abstract=4867385 or http://dx.doi.org/10.2139/ssrn.4867385

Darren Bush (Contact Author)

University of Houston Law Center ( email )

4170 Martin Luther King Blvd.
Houston, TX 77204-6060
United States
713.743.3346 (Phone)

HOME PAGE: http://www.law.uh.edu/faculty/main.asp?PID=1365

Mark A. Glick

University of Utah - College of Social & Behavioral Sciences - Department of Economics ( email )

1645 Central Campus Dr.
Salt Lake City, UT 84112
United States

Parsons Behle & Latimer

United States

Gabriel Lozada

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

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