Author/s: Bloomfield, Doni
Title: Competition and Risk
Journal:
Pages:
Link: https://papers.ssrn.com/abstract=3566661
Abstract: Merger review in the United States has overlooked a significant competition harm: increasing risk. Mergers can increase both counterparty risk and systemic riskÑthe risk of idiosyncratic firm shocks harming trading partners and the national economy. There is now clear evidence that negative shocks to a firm can impose significant harm to that firmÕs trading partners, leading to national economic effects. And as the COVID-19 pandemic has shown all too clearly, how we structure our markets can, in a crisis, become a matter of life and death overnight. I argue that mergers that increase counterparty and systemic risk by harming the competitive process can be blocked as violations of the Clayton Act. Systemic and counterparty risk should therefore be treated like innovation in merger review as factors that can increase or decrease merger legality. I show when a merger is likely to change risk, to whom, and in what direction. Important factors include pre- and post-merger market power, counterparty exposure, and network centrality. When a merger increases risk because of a harm to competition, that increased risk is an antitrust harm under the consumer welfare standard and can therefore be used to condemn the merger. Moreover, the agenciesÕ prosecutorial discretion allows them to consider risk harms in merger review even when such harms are not directly caused by reduced competition. To illustrate, I apply merger risk analysis to a large generic pharmaceuticals deal. I conclude with recommendations on how to incorporate risk analysis into merger review. Bringing risk analysis into merger review reveals otherwise invisible but significant merger harms and demonstrates that merger efficiencies have not just benefits but also serious costs. In an Appendix, I propose language for a new section in the Department of Justice and Federal Trade CommissionÕs Horizontal Merger Guidelines.
