CHALLENGES TO HORIZONTAL MERGERS BY COMPETITORS UNDER SECTION 7 OF THE CLAYTON ACT

• Date: 01 June 1986
• DOI: http://doi.org/10.1111/j.1744-1714.1986.tb00496.x
• Published date: 01 June 1986

CHALLENGES TO HORIZONTAL MERGERS BY

COMPETITORS UNDER SECTION

7

OF

THE

CLAYTONACT

*GREGORY

J.

WERDEN

This

Fall,

in

Cargill,

Ine.

v.

Mmfd

of

Cobrado,

Ine.,

the Supreme Court

will decide whether a competitor has standing

to

challenge

a

horizontal

merger.’ This article argues that competitors should not have standing

to challenge horizontal mergers? that denying competitors standing will

promote competition: and that the courts have applied improper stan-

dards in evaluating the legality

of

mergers challenged under the “inci-

pient predation” theory advanced

by

Monfort and other plaintiffs in

similar cases.’

Economist, Antitrust Division,

US.

Department of Justice. Although the author

wishes to acknowledge some free-riding off

of

the efforts of his Justice Department col-

leagues, the views expressed in this article do not purport

to

represent those of the

U.S.

Department of Justice.

I

761

F.2d

570

(10th Cir.

1985).

cert.

granted,

106

S.

Ct.

591 (1986)

(No.

85-473).

In this

case, the Court need decide only whether Monfort had standing to challenge Cargill’s ac-

quisition of a competitor. However, the

case

raises, and the Court has been asked to ad-

dress, the broader

issue

of whether competitors ever should

be

granted standing.

See

Brief

of the United States and the Federal Trade Commission at 21-25, Cargill, Inc. v. Monfort

of Colorado, Inc.

Id.

*

See

infra

notes

155-179

and accompanying text.

See

infra

notes

180-187

and accompanying text.

‘

See

infra

notes

73-154

and accompanying text. The term “predation”

refers

to con-

duct, particularly pricing below cost, that is designed

to

discipline or, more commonly,

to

destroy competitors and thereby eventually

to

reduce the vigor

of

competition. The

term

“incipient predation” is coined here

to

describe allegations

to

the

effect

that a merger

will lead to predation where such conduct had not previously existed.

214

I

Vol.

24

I

American

Business

Law

Journal

CASES IN WHICH

HORIZONTAL

MERGERS

WERE CHALLENGED

BY

COMPETITORS

Traditionally, the

U.S.

Department of Justice and the Federal Trade

Commission have enforced the antitrust laws relating to mergers almost

exclusively. Over the past few years, however, there have been at least

six cases in which a firm has filed suit under section

7

of the Clayton Act‘

to enjoin

or

dissolve the merger of two of

its

competitors. In each case,

the plaintiff advanced, at least to some extent, the theory that the merger

would cause the merged

firms

to engage in some form of predatory con-

duct. In five of the cases, courts considered plaintiffs’ theory legitimate

and either enjoined the merger

or,

at least, refused to grant defendants’

motions for dismissal

or

summary judgment.

Monjii

of

Colorado,

Inc.

v.

Cargill,

I~C.~

In June

1983,

Excel

Corp.,

a wholly owned subsidiary of Cargill, Inc.

signed an agreement

to

acquire the Spencer Beef Division of Land

O’Lakes, Inc. Both Excel and Spencer were engaged in the slaughter of

cattle and the fabrication of beef in the midwestern United States. The

proposed acquisition was challenged by Monfort of Colorado, Inc., which

was engaged in the slaughter and fabrication of

beef

in the same general

area as Excel and Spencer and which

also

operated commercial feedlots.’

Montfort alleged that

after

the acquisition the relevant markets would

be dominated by Excel and IBP, Inc., another firm engaged in the

slaughter and fabrication of

beef,

and, according to the district court, that

they “would attempt to enlarge their respective market shares at the

expense of each other and, more significantly, at the expense of smaller

competitors such

as

Monfort.”* Monfort alleged that “IBP and Excel would

engage in a price-cost ‘squeeze’ bidding up the price of necessary raw

product input supply (fed cattle) while at the same time lowering the cost

of finished output product (boxed beef).”P The district court found that

plaintiffs’ allegations were sufficient to give plaintiff standing to challenge

the acquisition.1°

Ch. 323,

S

7. 38

Stat.

730

(1914)

(most

recent codification at

15

U.S.C.

S

18 (1982)).

*

591 F. Supp. 683 (D. Colo. 1983).

ufs,

761 F.2d 570 (10th Cir. 1985).

’

591

F.

Supp. at 687-89.

’

Id.

at 691. Monfort did not contend that the merger would lead

to

predation, but rather

only that Monfort would be harmed by Excel’s and IBP‘s attempts

to

increase market

share,

ie.,

by competition.

See

id

See

also

Petition for Writ of Certiorari, at 10, Cargill,

Inc.

v.

Monfort of Colorado, Inc., 761 F.2d 570 (10th Cir. 19851,

cert.

grunted,

106

S.

Ct.

591 (1985) (NO. 85-473).

591 F. Supp. at 691.

Id.

at 690-95.