Consumers and Citizens: The Future of the Consumer Welfare Standard in Global Merger Review

• Author: Jesse Solomon, Gregory S. Morrison, and Doni Bloomfield
• Position: Member of the California and District of Columbia Bars/Member of the New York and South Carolina Bars/Judicial clerk at the United States Court of Appeals for the District of Columbia Circuit and is a Member of the Maryland Bar
• Pages: 265-307

CONSUMERS AND CITIZENS: THE FUTURE OF THE

CONSUMER WELFARE STANDARD IN GLOBAL

MERGER REVIEW

J

ESSE

S

OLOMON

G

REGORY

S. M

ORRISON

D

ONI

B

LOOMFIELD

*

Global merger review is transforming. What for 40 years has been largely a

technocratic enterprise employing a focused definition of competition is now

more expansive—and less predictable. Merging parties must contend with the

Chinese statute on competition policy, which explicitly marries antitrust law

and industrial policy. Meanwhile, in the United States, antitrust orthodoxies

are under fire from the left and the right. On the left, an influential wing of the

Democratic Party seeks to revive and reshape the early populist origins of

antitrust law, which embraced a set of policy goals beyond consumer welfare.

Indeed, President Biden’s recent executive order on “Promoting Competition

in the American Economy” may signal that these views are in the ascendant.

On the right, the recent past presidential administration at times arguably

deemphasized or dispensed with a technocratic approach to antitrust policy,

and instead (in the view of some) used merger review to prioritize partisan

interests divorced from competition law. These trends may signal the rise of a

new era—an ambiguous era characterized by splintered factions and ap-

* Mr. Solomon is a Member of the California and District of Columbia Bars. Mr. Morrison is

a Member of the New York and South Carolina Bars. Mr. Bloomfield is a judicial clerk at the

United States Court of Appeals for the District of Columbia Circuit and is a Member of the

Maryland Bar. This article was written before Mr. Bloomfield’s clerkship and represents only his

personal views. The authors would like to express their thanks to David Toscano, Dmitriy

Molchanov, Sybil Sam, and Chan Tov McNamarah for their valuable assistance with and com-

ments on earlier versions of this article, as well as to Rosie Lipscomb, the Antitrust Law Journal

Symposium Co-Editor (with Jesse Solomon) for her support in the development of this article.

The authors wish to disclose that this article references various transactions and investigations

over the past decade in which one or more authors, or their law firm, provided advice to a party

or a third party, including Comcast/NBCUniversal, GE/Electrolux, and ASE/SPIL, as well as

companies identified in the House Judiciary Committee report cited infra note 133 et seq. In all

instances, the authors have relied solely upon the public record in referencing these precedents.

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proaches, and one in which firms no longer can rely solely on old tools to

predict the outcome of merger reviews.

In 2008, China implemented its inaugural antitrust regime with the enact-

ment of its Anti-monopoly Law (AML). In the 12 years since, many U.S.

critics and merging parties have argued that China’s antitrust law focuses on

industrial and trade policies as integral elements of merger review. In contrast,

U.S. merger review has been guided solely by a merger’s prospective compet-

itive effects.

1

Such a binary view of U.S. and Chinese merger enforcement may be too

simplistic today, if it ever was entirely accurate.

2

Although the two nations

retain distinct approaches to merger review, it is increasingly the case that

neither applies the generally predictable and narrowly focused approach of

maximizing consumer welfare that merging parties and their antitrust advisors

have come to expect. Merging parties today face complex calculations that

raise three questions. First, will enforcers review transactions on the basis of

the consumer welfare standard, another competition standard, or a standard

that is not concerned strictly with competitive effects at all? Second, will au-

thorities apply the same standard to similar cases, or make ad hoc and arbi-

trary decisions? And third, how do these evolving standards shift strategic

calculations in crafting a global merger defense? In this new world, is hiring

the president’s personal lawyer just as critical a step as selecting an econo-

1

Industrial policy refers to “any government policy that encourages resources to shift from

one [domestic] industry or sector into another, by changing input costs, output prices, or other

regulatory treatment.” T

ODD

T

UCKER

, R

OOSEVELT

I

NST

., I

NDUSTRIAL

P

OLICY AND

P

LANNING

:

W

HAT

I

T

I

S AND

H

OW TO

D

O

I

T

B

ETTER

6 (2019), rooseveltinstitute.org/wp-content/uploads/

2020/07/RI_Industrial-Policy-and-Planning-201707.pdf. Trade Policy is “the complete frame-

work of laws, regulations, international agreements and negotiating stances adopted by govern-

ment to achieve legally binding market access for domestic firms. . . . [I]t represents the

international dimension of national policies adapted for domestic reasons.” Trade Policy, D

IC-

TIONARY OF

T

RADE

P

OLICY

T

ERMS

368 (4th ed. 2003), ctrc.sice.oas.org/trc/WTO/Documents/

Dictionary%20of%20trade%20%20policy%20terms.pdf. We need not distinguish between in-

dustrial and trade policy for purposes of this article because both policies bring domestic policy

considerations that are to some degree extrinsic to competition to bear on merger review. In

shifting domestic resources, industrial policy considers international market inputs and condi-

tions, which are regulated by trade policy. Similarly, the health of a nation’s domestic markets,

which is the concern of its industrial policy, is also at the center of its trade policy. In this way, a

merger between businesses will implicate matters of both trade and industrial policy.

2

Importantly, because of space constraints, in this article we do not consider the European

Union’s merger review regime. It is worth noting, however, that EU competition authorities face

increasing pressure to give room to industrial policy favoring local industry and are considering

changes to merger review to openly accommodate these goals. See Eur. Comm’n, A New Indus-

trial Strategy for Europe, COM (2020) 102 final (Mar. 3, 2020), eur-lex.europa.eu/legal-content/

EN/TXT/PDF/?uri=CELEX:52020DC0102&from=EN; Elisa Braun et al., EU Big Four Press

Vestager to Clear Path for Champions, P

OLITICO

(Feb. 6, 2020), www.politico.eu/article/eu-big-

four-france-germany-italy-poland-press-executive-vice-president-margrethe-vestager-to-clear-

path-for-champions/.

2021]

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ONSUMERS AND

C

ITIZENS

267

mist?

3

Similarly, in order to close a deal, will it be just as important for parties

to guarantee jobs in a particular U.S. state as promising to keep production in

China?

In this article we do not take a normative position on which political, social,

or economic conditions the antitrust laws should address. Instead, we take up

the first two questions above by looking to a number of recent Chinese and

U.S. merger reviews to assess what competition standard—or noncompetition

standard—enforcers are applying today and likely will apply in the near

future.

One important definitional point: throughout this piece, we refer to techno-

cratic or consumer welfare-oriented antitrust as distinct from other approaches

to competition law. By this we mean an antitrust approach that aims to pro-

tect, in the words of Herbert Hovenkamp, “actors who [are] injured by . . . a

monopolistic output reduction.”

4

That injury can be in the form of increased

price or decreased quantity, quality, or innovation. And it is typically assessed

using standardized tools that enforcers and scholars have developed over

time—such as the Herfindahl-Hirschman Index, merger models, Upward Pric-

ing Pressure calculus, and the like—and the search for other evidence of ac-

tual or likely competitive effects. Indeed, under existing law, this consumer

welfare standard encompasses injuries to economic actors that are not “end

consumers” in the sense of retail purchasers of finished products. For exam-

ple, there are numerous historical enforcement actions involving intermediate

product markets where the buyers and sellers are businesses, some of which

are discussed below. There are also many examples of enforcement actions

relating to “buyer power” in labor, agricultural, health care, and other mar-

kets.

5

This is the baseline that has remained relatively stable in the United

States since the early 1980s, albeit with some meaningful deviations in inter-

pretation between Democratic and Republican administrations.

6

Chinese enforcers, by contrast, are required by law to consider a more ex-

pansive set of considerations than the consumer welfare competition standard.

The AML explicitly requires that regulators consider the needs of the devel-

opment of a “healthy . . . socialist market economy.”

7

In other words, the

3

See infra note 127 and accompanying text.

4

Herbert Hovenkamp, Is Antitrust’s Consumer Welfare Principle Imperiled?, 45 J. C

ORP

. L.

101, 115 (2019); see also Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979). But see John M.

Newman, The Output-Welfare Fallacy in Antitrust Analysis, 107 I

OWA

L. R

EV

. (forthcoming

2022), papers.ssrn.com/sol3/papers.cfm?abstract_id=3866725.

5

E.g., FTC v. Consol. Foods Corp., 380 U.S. 592, 599–601 (1965); Complaint at 8, 12,

United States v. UnitedHealth Group, Inc., No. 1:05-CV-02436 (D.D.C. Dec. 20, 2005).

6

See infra Part II.B.

7

Anti-Monopoly Law of the People’s Republic of China (promulgated by the Standing

Comm. Nat’l People’s Cong., Aug. 30, 2007, effective Aug. 1, 2008), 2007 S

TANDING

C

OMM

.