Merger to Monopsony: An Efficiencies Defense

• Author: Roger D. Blair
• Published date: 01 September 2012
• Date: 01 September 2012
• DOI: http://doi.org/10.1177/0003603X1205700308
• Subject Matter: Article

THE ANTITRUST BULLETIN: Vol. 55, No. 3/Fall 2010 : 689
Merger to monopsony:
An efficiencies defense
BY ROGER D. BLAIR*
In a classic article, Oliver Williamson introduced the efficiency
defense to antitrust merger analysis. In this article, I extend his
analysis to mergers among buyers that may create monopsony
power. When such mergers are accompanied by merger-specific
efficiencies, there is necessarily a welfare tradeoff. Evaluating the
impact of the merger on social welfare requires a comparison of the
cost savings that can be realized only without the merger and the
allocative inefficiency due to the exercise of monopsony power.
I.
INTRODUCTION
Oliver Williamson, a 2009 Nobel Laureate, explained that the produc-
tion efficiencies resulting from a horizontal merger could outweigh the
anticompetitive consequences of the inevitable increase in concentra-
tion that accompanies it.1 In that event, an otherwise objectionable
merger would appear to be socially beneficial and should not be con-
*
Walter J. Matherly Professor, Department of Economics, University of
Florida.
AUTHOR’S NOTE: Without implicating them in what follows, I thank Jessica Haynes for
earlier collaboration on related topics and Christine Durrance for useful comments.
1
Oliver E. Williamson, Economies as an Antitrust Defense: The Welfare
Trade-Offs, 58 AM. ECON. REV. 18 (1968).
© 2010 by Federal Legal Publications, Inc.

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690 : T H E A N T I T R U S T B U L L E T I N : Vol. 55, No. 3/Fall 2010
demned under section 7 of the Clayton Act.2 As we shall see, much the
same can be said for merger-specific efficiencies resulting from a
merger among buyers that leads to the exercise of monopsony power.
Even though the merger creates some welfare loss due to alloca-
tive inefficiency, the cost saving due to the merger-specific efficiencies
may swamp the allocative inefficiency. In that event, the net welfare
effect will be positive.
There has been increasing recognition that the exercise of buying
power, or monopsony power, poses competitive problems that are
analogous to those posed by the exercise of monopoly power.3 Consid-
erations of monopsony have played a role in merger analysis in recent
years, but considerations of possibly compensating efficiencies have
not.4 To be sure, merger to monopsony unaccompanied by efficiencies
involves social welfare losses that are the proper concern of section 7
of the Clayton Act. But such mergers, if accompanied by efficiencies,
may be socially beneficial and should be spared in that event.
The article proceeds as follows. In section II, I examine the lan-
guage of section 7 of the Clayton Act and the inclusion of efficiencies
in the antitrust analysis of the Department of Justice and the Federal
Trade Commission (the Agencies) as reflected in the proposed 2010
Merger Guidelines. Section III extends Williamson’s seminal analysis
to the case of monopsony. Section IV examines the consequences of
the Agencies’ “pass-through” requirement in the monopsony context.
In section V, I provide some brief concluding remarks.
2
15 U.S.C. § 18 (2010).
3
For an extensive survey, see ROGER D. BLAIR & JEFFREY L. HARRISON,
MONOPSONY IN LAW & ECONOMICS (2010).
4
United States v. Aetna, Inc., No. 3-99CV1398-H (N.D. Tex. filed June
21, 1999); United States v. Cargill, Inc., No. 1:99CV01875 (D.D.C. filed July 8,
1999). The proposed 2010 Horizontal Merger Guidelines explicitly recognize
that mergers among buyers can prevent competitive problems. See FED.
TRADE COMM’N, HORIZONTAL MERGER GUIDELINES (PROPOSED) § 8 (Apr. 20,
2010), available at http://www.ftc.gov/os/2010/04/100420hmg.pdf [here-
inafter 2010 GUIDELINES].

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M E R G E R TO M O N O P S O N Y : 691
II.
SECTION 7 AND EFFICIENCIES
Section 7 of the Clayton Act is a prophylactic measure designed to
prevent changes in market structure that may facilitate collusion or
noncompetitive unilateral behavior. Specifically, section 7 states that:
No person engaged in commerce . . . shall acquire, directly or indirectly,
the whole or any part of the stock or . . . the whole or any part of the
assets of another person engaged also in any activity affecting commerce,
where in any line of commerce . . . in any section of the country, the effect
of such acquisition may be substantially to lessen competition, or to tend
to create a monopoly.5
When the merger involves buyers, the concern centers on mergers
that may...