Should antitrust consent decrees regulates post-merger pricing?

Journal of Competition Law and Economics

Volumn 3, Issue 3, 2007, Pages 471-490

  Malone, Farrell ^a   Sidak, J Gregory ^b  

^a Cleary Gottlieb Steen and Hamilton   (United States)

^b GEORGETOWN UNIVERSITY LAW CENTER   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 45949097810     PISSN: 17446414     EISSN: 17446422     Source Type: Journal    
DOI: 10.1093/joclec/nhm019     Document Type: Article

References (97)

1. The first consent decree was issued over 100 years ago. See Victor H. Kramer, Modification of Consent Decrees: A Proposal to the Antitrust Division, 56 MICH. L. REV. 1051, 1051 2 n. (1958) (noting that the first consent decree was issued in United States v. Otis Elevator Co. on June 1, 1906).
2. Representative Ric Keller of Florida asked Mel Karmazin, CEO of Sirius, whether, "as a condition to securing approval from the federal government for this merger," he "would agree to pricing restrictions for a period of time." Antitrust Task Force Subcommittee, House Committee on the judiciary, Competition and the Future of Digital Music, February 28, 2007. es," Mr. Karmazin answered. Id.
3. See In the Matter of AT&T Inc. and BellSouth Corp. Application for Transfer of Control, 22 F.C.C.R. 5662 (2006) (Memorandum Opinion and Order). With respect to their core businesses, AT&T and BellSouth were not actual competitors in a relevant geographic market.
4. See, e.g., Thomas L. Greancy, Night Landings on an Aircraft Carrier: Hospital Mergers and Antitrust Lazo, 23 AM. J.L. & MED. 191 (1997).
5. U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines §0.1 (1997), at http://www.usdoj.gov/atr/public/ guidelines/hmg.htm [hereinafter Horizontal Merger Guidelines].
6. See, e.g., id. §0.2.
7. Oliver E. Williamson, Economics as an Antitrust Defense: The Welfare Trade-Offs, 58 AM. ECON. REV. 18 (1968).
8. See id. at 21-22.
9. See An Renckens, Welfare Standards, Substantive Tests, and Efficiency Considerations in Merger Policy: Defining the Efficiency Defense, 3 J. COMPETITION L. & ECON. 149 (2007).
10. 15 U.S.C. §18.
11. See, e.g., 2 PHILIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 327(a) (2004).
12. See, e.g., Spencer Weber Waller, Prosecution By Regulation: The Changing Nature of Antitrust Enforcement, 77 OR. L. REV. 1383, 1408-09 (1998) ("More than seventy percent of government civil antitrust suits are concluded by consent judgments.")
13. see also 2 AREEDA & HOVENKAMP, supra note 11, ¶327.
14. 15 U.S.C. §16(b).
15. See Sanford L Weisburst, Judicial Review of Settlements and Consent Decrees: An Economic Analysis, 28 J. LEGAL STUD. 55, 92 n. 112 (1999).
16. See, e.g., Lars Noah, Administrative Arm-Twisting in the Shadow of Congressional Delegations of Authority, 1197 WIS. L. REV. 873, 894-95 (1997)
17. John R. Wilke & Bryan Gruley, Merger Monitors: Acquisitions Can Mean Long-Lasting Scrutiny By Antitrust Agencies, WALL ST. J., Mar. 4, 1997, at A1.
18. Antitrust Division Policy Guide to Merger Remedies, U.S. Dep't of Justice, Antitrust Division (October 2004), at http://www.usdoj.gov/atr/ public/guidelines/205108.htm [hereinafter DOJ Merger Remedies].
19. Id. §II.A.
20. Statement of the Federal Trade Commission's Bureau of Competition on Negotiating Merger Remedies, at http://www.ftc.gov/bc/bestpractices/ bestpractices030401.htm [hereinafter FTC Merger Remedies].
21. DOJ Merger Remedies, supra note 16 (emphasis added).
22. id.
23. See, e.g., R. Hewitt Pate, Assistant Att'y Gen'l, Antitrust Division, U.S. Dept. of Justice, Senate Committee on the Judiciary Antitrust Enforcement in the Agricultural Marketplace (October 30, 2003), available at http://www.usdoj.gov/atr/public/testimony/ 201430.htm.
24. Reply Brief for Plaintiff Appellant FTC at 5, FTC v. Butterworth Health Corp., Case No. 1:96-CV-49 (6th Cir. 1997) [hereinafter Butterworth Reply Brief].
25. Mary Lou Steptoe & David Balto, Finding the Right Prescription: The FTC's Use of Innovative Merger Remedies, 10 ANTITRUST 16 (Fall 1995) ("The FTC has consistently rejected these proposals on the grounds that it is not a price-regulating agency, compliance is difficult to monitor, and competition is the proper driving force for pricing decisions.").
26. See Butterworth Health Corp. v. FTC, 946 F. Supp. 1285 (WD. Mich. 1996); FTC v. Cardinal Health, 12 F. Supp. 2d 34 (D.D.C. 1998).
27. See Butterworth Health Corp. v. FTC, 946 F. Supp. 1285 (W.D. Mich. 1996).
28. id.
29. Id. at 1294, 1298 (discussing how commitment would freeze price for three years).
30. Brief for Plaintiff Appellant FTC at 14, FTC v. Butterworth Health Corp., Case No. 1:96-CV-49 (6th Cir. 1996).
31. Butterworth Health, 946 F. Supp. at 1302-03.
32. FTC v. Butterworth Health, 1997 U.S. App. LEXIS 17422,1997-2 Trade Cas. (CCH) 71,863 (6th Cir. 1997).
33. For a survey of the FCC's use of merger conditions, see HAROLD FURCHTGOTT-ROTH, A TOUGH ACT To FOLLOW?: THE TELECOMMUNICATIONs ACT OF 1996 AND THE SEPARATION OF POWERS (2006).
34. See also Donald J. Russell & Sherri Lynn Wolson, Dual Antitrust Review of Telecommunications Mergers by the Department of Justice and the FCC, 11 GEO. MASON L. REV. 143, 154 (2002) (noting that the parties in FCC-reviewed mergers "have no real opportunity to challenge either the FCC's analysis of competitive concerns or the factual determinations on which that analysis is based").
35. See AT&T/Bellsouth Order, supra note 3
36. see also Scott Leith, Democrats Wrung Concessions From AT&T, COX NEWS SERVICE, Dec. 29, 2006.
37. See AT&T/BellSouth Order, supra note 3, at 148 ("Within six months of the Merger Closing Date, and continuing for at least 30 months from the inception of the offer, AT&T/BellSouth will offer to retail consumers in the Wireline Buildout Area, who have not previously subscribed to AT&T's or BellSouth's ADSL service, a broadband Internet access service at a speed of up to 768 Kbps at a monthly rate (exclusive of any applicable taxes and regulatory fees) of $10 per month.").
38. See Press Release, Statement by Assistant Attorney General Thomas O. Barnett Regarding the Closing of the Investigation of AT&T's Acquisition of BellSouth, October 11, 2006, at http://www.usdoj.gov/atr/public/press_releases/2006/218904.htm ("After thoroughly investigating AT&T's proposed acquisition of BellSouth, the Antitrust Division determined that the proposed transaction is not likely to reduce competition substantially.").
39. Pate, supra note 21.
40. DOJ Merger Remedies, supra note 16.
41. See Buttenvorth Reply Brief, supra note 22, at 14-15 (noting that the Community Commitment in that case gave the merging parties the ability to set supracompetitive prices); see also Steptoe & Balto, supra note 23, at 16.
42. For analysis of the practical issues in implementing antitrust consent decrees, see Michael E. DeBow, Judicial Regulation of Industry: An Analysis of Antitrust Consent Decrees, 1987 U. CHI. LEGAL F. 353 (1987)
43. E. Thomas Sullivan, The Jurisprudence of Antitrust Divestiture: The Path Less Traveled, 86 MINN. L. REV. 565, 611 (2002) ("[A]n injunction could set maximum prices that a firm would be allowed to charge. This option, however, seems particularly troubling in the new economy because of the very rapid change of the market and the regulatory oversight that might be required to monitor conduct.").
44. Butterworth Health, 946 F. Supp. at 1298.
45. There is some empirical support for this argument. In FTC v. Cardinal Health, 12 F. Supp. 2d 34, 65, 67 (D.D.C. 1998), the court expressed concern that, "[i]n the absence of real competition, ... the prices set today could in effect become the floor tomorrow." Later in the opinion, the court noted that, "if the industry had made a promise not to raise prices in 1988 when McKesson first tried to acquire AmeriSource and froze prices at that time, the public would have been deprived of a reduction in the wholesale [price of over 3.5%]." Id. at 118-19.
46. Stephen Calkins, In Praise of Antitrust Litigation: The Second Annual Bernstein Lecture, 72 ST. JOHNS L. REV. 1, 8 (1998).
47. David Balto & Meleah Geertsma, Why Hospital Merger Antitrust Enforcement Remains Necessary: A Retrospective on the Butterworth Merger 34 J. HEALTH L. 129, 154 (2001).
48. Stephen Calkins, Perspectives on State and Federal Antitrust Enforcement, 53 DUKE L.J. 673, 701 (2003).
49. See J. GREGORY SIDAK & DANIEL F. SPULBER, DEREGULATORY TAKINGS AND THE REGULATORY CONTRACT: THE COMPETITIVE TRANSFORMATION OF NETWORK INDUSTRIES IN THE UNITED STATES 101 (1997) (discussing origins of public utility regulation).
50. Stephen G. Breyer, Antitrust, Deregulation, and the Newly Liberated Marketplace, 75 CAL. L. REV. 1005, 1043 (1987) ("Regulation exacts a price ... in terms of delayed decisions, expensive bureaucracy, diminished predictability, and imperfect replication of the free market.").
51. See Greancy, supra note 4, at 218.
52. See Breyer, supra note 45, at 1043 (comparing antitrust courts to regulatory bodies and concluding that antitrust courts are not appropriate for price regulation).
53. Cf. RICHARD A. EPSTEIN, ANTITRUST CONSENT DECREES IN THEORY AND PRACTICE 16 (2007) (discussing difficulty of implementing a consent decree that regulated price to prevent predation by a monopolist).
54. See SIDAK & SPULBER, supra note 44, at 101.
55. Whitman v. Am. Trucking Ass'n, 531 U.S. 457, 472 (2001) ("In a delegation challenge, the constitutional question is whether the statute has delegated legislative power to the agency.").
56. Peter H. Aranson, Ernest Gellhorn & Glen O. Robinson, A Theory of Legislative Delegation, 68 CORNELL L. REV. 1, 17 (1982).
57. See ERNEST GELLHORN & ROBERT M. LEVIN, ADMINISTRATIVE LAW AND PROCESS 27 (1997).
58. See Am. Trucking Ass'n, 531 U.S. at 474.
59. We do not explore whether the DOJ should choose to challenge a merger or require a decree in the first place. There was criticism of the DOJ's approval, without conditions, of the merger of AT&T and BellSouth in 2006. See, e.g., Amy Schatz & Siobhan Hughes, Justice Department Criticized For Approving Big AT&T Deal, WALL ST. J., Oct. 12, 2006, at B4. However, the DOJ has prosecutorial discretion to bring or dismiss any particular complaint.
60. See, e.g., John J. Flynn & Darren Bush, The Misuse and Abuse of the Tunney Act: The Adverse Consequences of the "Microsoft Fallacies," 34 LOY. U. CHI. L.J. 749, 791 (2003).
61. See, e.g., SIDAK & SPULBER, supra note 44, at 101
62. Jeremy A. Rabkin & Neal E. Devins, Averting Government by Consent Decree: Constitutional Limits on Enforcement of Settlements with the Federal Government, 40 STAN. L. REV. 203 (1987)
63. Flynn & Bush, supra note 53, at 790 ("Congress did not give the DOJ the right to determine the remedy in a litigated case by submitting a proposed consent decree in circumstances where a consent decree is entirely inappropriate.").
64. See, e.g., E. Thomas Sullivan, The Antitrust Division as a Regulatory Agency: An Enforcement Policy in Transition, 64 WASH. U. L.Q. 997, 1053-54 (1986) (noting that the shift from enforcement to regulatory emphasis was without clear congressional approval).
65. Calkins, In Praise of Antitrust Litigation, supra note 41, at 9.
66. See, e.g., Sullivan, supra note 38, at 611
67. Greancy, supra note 4, at 218 (noting that the Butterworth Health district court "engaged in rate regulation" and citing practical issues, but ignoring whether the practice was legal in the first instance).
68. See ICC v. Cincinnati, New Orleans & Tex. Pac. R. Co., 167 U.S. 479, 505 (1897) ("TIC power to prescribe a tariff of rates for carriage by a common carrier is a legislative and not an administrative or judicial function.").
69. See, e.g., George M. Chandler, The Interstate Commerce Commission: The First Twenty-Five Years, 16 TRANSP. L.J. 53 (1987).
70. See id. at 55.
71. See Edward C. Donovan, The Interstate Commerce Commission and the Boundaries of Agency Discretion in Statutory Interpretation, 60 GEO. WASH. L. REV. 1357, 1358 (1992).
72. 211 U.S. 210, 226 (1908).
73. But see Butterworth Health Corp. v. FTC, 946 F. Supp. 1285 (W.D. Mich. 1996) (courtinitiated decree).
74. Prentis, 211 U.S. at 227.
75. Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332 (1982).
76. Id. at 350-51.
77. Id. at 351.
78. See, e.g., Paul Stephen Dempsey, Rate Regulation and Antitrust Immunity in Transportation: The Genesis and Evolution of This Endangered Species, 32 AM. U. L. REV. 335, 342 (1983).
79. 167 U.S. 479, 505 (1897).
80. Id.;
81. see also Calkins, supra note 56, at 9.
82. See DOJ Merger Remedies, supra note 16.
83. Clinton v. City of New York, 524 U.S. 417, 451 (1998) (Kennedy, J., concurring).
84. id.
85. Loving v. United States, 517 U.S. 748, 756 (1996).
86. Buckley v. Valeo, 424 U.S. 1, 122 (1976), quoted in Mistretta v. United States, 488 U.S. 361, 381 (1989).
87. INS v. Chadha, 463 U.S. 919, 963 (1983) (Powell, J., concurring).
88. See, e.g., Prentis, 211 U.S. at 226.
89. J. Gregory Sidak, To Declare War, 41 DUKE L.J. 27, 66 (1991).
90. William F. Baxter, Separation of Powers, Prosecutorial Discretion, and the "Common Law" Nature of Antitrust Law, 60 TEX. L. REV. 661, 687 (1982).
91. Id. at 687.
92. Id.
93. Id. at 687-88.
94. Id. Baxter only explicitly discussed encroachment on the judiciary's function of settling cases or controversies rather than our concern of encroachment on the legislative function of price regulation. His argument, however, applies to our context.
95. Michael W. McConnell, Why Hold Elections? Using Consent Decrees to Insulate Policies From Change, 1987 U. CHI. LEGAL F. 295, 303-04 (1987) (citations omitted);
96. see also Peter M. Shane, Federal Policy Making By Consent Decree: An Analysis of Agency and Judicial Discretion, 1987 U. CHI. LEGAL F. 241 (1987)
97. Rabkin & Devins, supra note 54.