Revisiting Structural Remedies

• Pages: 38-44
• Date: 01 October 2024
• Author: John Kwoka

ARTICLES

38 · ANTITRUST

This is not work that the agency should have to do. That’s

something that really should be fixed on the front end and

by parties being on clear notice about what are lawful and

unlawful deals. We’re going to be focusing our resources on

litigating rather than settling.

There is now good evidence of changes in agency prac-

tice. In 2021, before these announced policy changes, the

FTC challenged 18 mergers, five of which were settled with

some type of remedy, seven abandoned, and six litigated.

The DOJ challenged 14 mergers, settling nine, while three

were abandoned and two litigated.3 After these declarations

by the agency heads, the data begin to show a different pat-

tern. DOJ has entered into a settlement only once (and that

under unusual conditions), while the FTC has done so in

ten instances but has refused to accept remedies in certain

cases where it would have done so in the past.4

These changes in policy and practice have been to the

surprise of many and the consternation of some, but as will

be described, these changes in fact represent the continuing

evolution of the agencies’ remedies policy. There have been

sufficient troublesome experiences—including outright fail-

ures—of divestitures to prompt increasing caution about

their use, as well as concern that the necessary conditions for

their success have not been sufficiently attended to and that

their inherent limitations have not been fully appreciated.5

Transactions such as Haggens-Safeway and Hertz-Dollar are

well-cited examples, but divestitures in T-Mobile/Sprint,

Ticketmaster-Live Nation, and many pharmaceutical merg-

ers also illustrate their limitations and failures and demon-

strate how accepting inadequate divestitures can result in

effectively allowing anticompetitive mergers to proceed with

few if any constraints.

Two major forces have converged to produce this policy

reckoning. The first is the recognition that so-called “struc-

tural remedies” are not as free of adverse incentives and

opportunities for mischief as has often been thought, or at

least hoped. Merging firms’ contrary incentives can play a role

in their design and implementation, compromising—and at

times sabotaging—what may appear to be straightforward

divestitures. Examples demonstrate that the agencies have not

always prevented these forces from taking effect.

The second factor stems from economic research on struc-

tural remedies. That research has often been interpreted as

generally supportive of divestiture remedies. A careful read-

ing, however, reveals weak methodology and inconsistent

standards of what constitutes “success” in some widely cited

studies. In reality, the track record of structural remedies

in practice is considerably more mixed than some authors

claim and many advocates would like to believe.

While these considerations have resulted in a more cau-

tious—indeed, skeptical—view of divestitures, they do not

imply the absence of any possible role for structural reme-

dies. Experience, however, suggests a far narrower role than

in recent practice. A useful complement to this new pol-

icy would be further studied by the agencies of criteria for

Revisiting Structural

Remedies

BY JOHN KWOKA

OVER THE PAST SEVERAL YEARS, THE

case against conduct remedies seems largely to

have prevailed. Experience has shown that sup-

posed remedies that are essentially rules seeking

to prohibit profitable actions by merged com-

panies will predictably elicit efforts to circumvent them.

Both evidence and anecdotes confirm that firms routinely

succeed in these efforts, resulting in failures of competi-

tion policy relying on such remedies. This should not have

been a surprise to anyone familiar with industry regulation.

The very point of many regulatory rules is to prevent firms

from unconstrained maximization of their profit. Decades

of research have shown how often this is futile or, worse,

counterproductive.

As a result, most competition authorities worldwide have

now declared their strong preference for structural reme-

dies. Done correctly, a divestiture creates a separate entity,

with its own profit-maximizing objectives similar to those in

the premerger market. This harnesses a firm’s independent

incentives and relies on competitive forces to restore market

competition. At least in principle, this should allow compe-

tition authorities to avoid regulatory-type oversight.

But recently, both the Federal Trade Commission and the

Antitrust Division of the Department of Justice have gone

further and indicated their determination to avoid the use

of divestitures as well as conduct remedies. The head of the

Antitrust Division, Jonathan Kanter, has said:1

Merger remedies short of blocking a transaction too often

miss the mark. Complex settlements, whether behavioral

or structural, suffer from significant deficiencies. When the

Division concludes that a merger is likely to lessen competi-

tion, in most situations we should seek a simple injunction

to block the transaction.

This critical view has been seconded by FTC Chair Lina

Khan. In commenting on what had often been protracted

negotiations between merging parties and the agencies seek-

ing acceptable divestiture settlements, she stated:2

John Kwoka is the Neal F. Finnegan Distinguished Professor of Econom-

ics at Northeastern University. He thanks Randy Stutz, Spencer Waller,

and participants at the OECD Roundtable on Ex Post Assessments of

Merger Remedies, Paris (2023) for helpful comments. All opinions are

the sole responsibility of the author.

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