Getting to "May Be": Probability, Potential Competition, and the Clayton Act

Current merger review law is critically flawed. Courts in Clayton Act Section 7 cases consider the likelihood that a merger will harm competition as a threshold question before considering the size of harm that could ensue. Under current law, to block a merger a judge must find that the deal is likely to substantially harm competition. But this likelihood threshold is neither sound policy nor required by the law. The statute—barring mergers whose effects “may be substantially to lessen competition”—instructs courts to evaluate the likelihood and magnitude of harm that a merger could cause together, rather than separately. Considering likelihood without simultaneously weighing magnitude is to miss half the story. Courts should instead bar mergers whose expected effect, multiplying likelihood of harm by magnitude of harm, is to significantly harm competition.

Applying an expected-effects test will also fix our broken potential competition doctrine. Because it is often impossible to show that a merger between a dominant firm and its potential rival is more likely than not to significantly harm competition, the Clayton Act is a dead letter as applied to such mergers. Discarding the likelihood threshold reveals how harmful many such mergers are on average, and will address the problem of incumbents buying their startup competitors.

To implement this test, I propose a new structural presumption for mergers between incumbents and potential rivals. The test stays within current statutory language and would help to block mergers that pose the greatest threat to future competition.