Guideline institutionalization: the role of merger guidelines in antitrust discourse.

• Author: Greene, Hillary

ABSTRACT

With the growth of the administrative state, agency-promulgated enforcement policy statements, typically referred to as guidelines, have become ubiquitous in the U.S. federal system. Yet, the actual usage and impact of such guidelines is poorly understood. Often the issuing agencies declare the guidelines to be nonbinding, even for themselves. Notwithstanding this disclaimer, the government, private parties, and even the courts frequently rely on the guidelines in a precedent-like manner.

In this Article, Professor Greene examines the evolution of one system of enforcement policy guidelines--the U.S. federal antitrust merger guidelines--and finds that these guidelines have acted as a stealth force on the development of antitrust merger law. The influence of this guideline system, she hypothesizes, emerges from a process of institutionalization through which the guidelines become valued for more than the persuasive power of their ideas. This institutionalization process arguably has had an undue influence upon common law development, as courts have failed to fully engage the legal and economic substance of the guidelines. These findings raise the more general concern that the courts have frequently ceded their role as checks on administrative agency power operating through nonbinding policy statements such as enforcement guidelines. Such questions regarding the judiciary's role in the separation of powers are broadly analogous to those raised by Theodore Lowi regarding Congress's role in the legislative process.

Professor Greene chronicles the history of the guidelines through a series of case studies involving key elements in merger analysis. Then, based on a review of all rulings from 1969 to 2003 concerning section 7 of the Clayton Act, she generates basic quantitative measures regarding judicial references to the guidelines and then qualitatively assesses the extent to which judicial reference to the guidelines reflects substantive reliance on them. Both the case studies and statistical data provide strong evidence supporting the institutionalization theory. Having raised normative questions regarding guideline institutionalization, she then evaluates several strategies to counter that influence and proposes conduct-oriented recommendations.

Though specifics may vary, the unacknowledged phenomenon of guideline institutionalization is not unique to antitrust law. As such, Professor Greene concludes this Article with an examination of guideline institutionalization in other contexts, including the FCC and FERC, state consumer protection, and federal sentencing.

TABLE OF CONTENTS INTRODUCTION I. GUIDELINE ROLES A. Express Role: Explain Reasoning and Analysis Underlying Agency Exercise of Prosecutorial Discretion B. Implicit Role: Commentary on the Law II. THE IMPACT OF GUIDELINES ON MERGER LAW A. Case Studies in Guideline Usage 1. 1968 Merger Guidelines 2. 1982 and 1984 Merger Guidelines--Department of Justice; 1982 Merger Statement--Federal Trade Commission a. HHI: Changing the Frame for Concentration Measurement b. Market Concentration Thresholds Table 1 c. SSNIP: Changing the Frame for Market Definition 3. 1992 Merger Guidelines a. Entry b. Treatment of Production Substitution and Entry B. Evidence of Overall Influence of the Merger Guidelines Graph 1 Graph 2 Graph 3 C. Reliance on Guidelines Within Reported and Unreported Decisions Table 2 III. GUIDELINE INSTITUTIONALIZATION: A THEORY REGARDING GUIDELINE REFERENCE AND RELIANCE A. A Theory of Guideline Influence Through Institutionalization B. Mechanisms of Institutionalization 1. Demand for Guidance: The Relative Lack of Controlling Authority 2. User-friendly Guidance: The Attractiveness of the Guidelines Package a. Comprehensive and Convenient b. Economic Framework 3. Deference to the Federal Agencies 4. Stealth Guidance: Influence Through Framing a. Selection of Guiding Principles b. Selection of Analytical Approach c. Sequencing and Categorization of Decisions d. Selection of Cases and Arguments e. Primary Reference Point C. Types of Guideline Influence 1. Refine 2. Revise 3. Reject 4. Trends in Influence D. The Congruence Hypothesis Is Not Supported Graph 4a Graph 4b IV. GUIDELINE INSTITUTIONALIZATION: ASSESSMENT AND RECOMMENDATIONS A. Normatively Assessing Guideline Influence 1. Separation of Powers 2. Dual Mandates B. Guidance Regarding Guidelines 1. Guideline Usage in the Courts 2. Guideline Promulgation by the Agencies 3. Guidelines, Rules, and Rulemaking-like Procedures V. INSTITUTIONALIZATION AND OTHER GUIDELINE SYSTEMS A. Interagency Guideline Influence: FERC and the FCC B. Guideline Generations and Split Institutions: FTC Unfairness Statement C. Federal Sentencing Guidelines: Deinstitutionalization 1. Degrees of Deference 2. Private Party Incentives 3. Expertise CONCLUSION INTRODUCTION

The constitutional character of key antitrust legislation, with its open-ended articulation of competitive principles, is a source of both strength and weakness. The statutory foundation of American antitrust law--the Sherman Act, section 5 of the Federal Trade Commission (FTC) Act, and section 7 of the Clayton Act--relies, by design, on common law development to infuse them with practical meaning. Common law development is, by nature, piecemeal. Since the late 1960s, the antitrust agencies have relied increasingly on guidelines, particularly in the area of mergers. Greater transparency in agencies' use of discretion is typically desirable. In this Article, however, I argue that the merger guidelines have resulted in a de facto, and ultimately undesirable, reduction in critical analysis elsewhere in the system, particularly at the judicial level.

With the growth of the administrative state, agency-promulgated enforcement policy statements, typically referred to as guidelines, have become ubiquitous in the U.S. federal system. Yet, the actual usage and impact of such guidelines is poorly understood. Often the issuing agencies declare the guidelines to be nonbinding, even for themselves. Notwithstanding this disclaimer, the government, private parties, and even the courts, frequently rely upon the guidelines in a precedent-like manner.

Consider the following example: Several prominent members of the antitrust and economic communities strongly and publicly advocate an economic measure of market concentration. Nonetheless, the antitrust bar virtually ignores the proposed measure for over a decade, and the courts resoundingly reject it on the rare occasions it is advocated. Once the Department of Justice (DOJ) endorses that theory in its enforcement policy guidelines--a document that does not bind that agency, let alone the courts--it is widely adopted by judges and litigants and quickly becomes the dominant method of analysis.

An even more extreme example characterizes the use of entry as a defense to charges that a merger would be anticompetitive. The federal antitrust agencies advocate a particular standard repeatedly and the courts reject it. Nevertheless, the agencies incorporate that ostensibly unsuccessful standard into their enforcement policy guidelines. The courts, then, not only endorse that guideline standard, but also manage to overlook its arguable inconsistency with their own prior rulings.

This Article examines the evolution of one system of enforcement policy guidelines--the U.S. federal antitrust merger guidelines (1)--and finds that these guidelines have acted as a stealth force on the development of antitrust merger law. The influence of this guideline system emerges from a process of institutionalization through which the guidelines become valued for more than the persuasive power of their ideas. This institutionalization process arguably has had an undue influence on the common law as courts have failed to fully engage the legal and economic substance of the guidelines. These findings raise the more general concern that courts have frequently ceded their role as checks on administrative agency power operating through nonbinding policy statements, such as enforcement guidelines. Such questions regarding the judiciary's role in the separation of powers are broadly analogous to those raised by Theodore Lowi regarding Congress's role in the legislative process. (2)

Part I provides background on enforcement policy guidelines generally and the antitrust merger guidelines specifically. Part II then chronicles the history of the merger guidelines. The history is presented through several case studies of guideline usage involving key elements in antitrust merger analysis: concentration ratios and thresholds, market definition, and entry. In these case studies, to the extent possible, I trace the impact of various guideline elements on antitrust law development. Next, based on a review of all rulings from 1969 to 2003 concerning section 7 of the Clayton Act, I generate basic quantitative measures of guideline usage, such as the number of references to the guidelines, and I then qualitatively assess the extent to which judicial reference to the guidelines reflects judicial reliance on the guidelines. The case studies and data provide strong evidence supporting the institutionalization theory. Such an in-depth study is necessary to understand the nature of the guideline influence and institutionalization, and the role of the courts in those processes.

In Part III, I present a general theory of guideline institutionalization and use it to interpret the history of merger guidelines. Several factors that contributed to the institutionalization of the guidelines are explored, including the key mechanisms of deference and framing. I also consider some broad trends in the use and the extent of guideline influence. At the end of this Part, I consider and reject the possibility that guideline influence could be explained solely by the congruence of the guidelines with existing law.

My interpretation of the evidence strongly suggests that...