While rules do need to be updated every so often, the current draft on merger approval is ideological overkill.
While rules do need to be updated every so often, the current draft is ideological overkill.
L ina Khan’s antitrust crusade is not confined to the courts. The Federal Trade Commission (FTC) chair has turned her attention to a nearly 50-year-old law about merger approvals. That law, the Hart-Scott-Rodino (HSR) Act of 1976, requires companies to file with the FTC and the Justice Department’s Antitrust Division when their planned mergers are above a certain size. The agencies can approve the transaction or request additional information, which sometimes leads to a formal challenge of a proposed deal.
Those HSR rules get updated every so often to adjust the size thresholds, along with other minor changes. But the most recent proposed updates, which Khan published in June of this year, go much further. Giving regulators better information to work with is defensible, but Khan’s goal is different. She is ideologically opposed to mergers, and she wants to discourage them by making the process so burdensome that many companies will not bother with it.
We recently filed comments exposing serious problems with the proposed new HSR rules. Those problems deserve more public attention.
The additional regulatory burden alone would cost more than the FTC and Justice Department’s combined 2023 antitrust budgets, according to former law professor Gus Hurwitz. And as the FTC increases the amount of paperwork to be submitted, the time it takes for the agencies to review initial HSR filings will increase as well. All this extra attention to pre-merger filings would take away resources from other agency priorities, such as litigation and consumer protection. The costs to the private sector would be even larger.
The government estimates that the new rules would roughly quadruple the average paperwork hours per filing, from 37 hours to 144. Those 107 extra hours per filing mean about $350 million in added labor costs. Lawyers who charge many of those billable hours think that that is a lowball estimate and that the actual increase will likely be “multiple times that figure.”
All this extra paperwork is unnecessary. Regulators can tell at a glance that more than half of proposed mergers pose no anticompetitive threat. These benign deals get something called early termination — meaning that the government’s evaluation gets terminated and the companies can go ahead with the merger. Of the 17,390 HSR transactions filed from 2011 through 2020, 10,153 received early termination. Khan’s FTC temporarily suspended the granting of early terminations in February 2021, and the agency has yet to reinstate the practice.
This means agencies already get enough information to let more than half of deals go through. There is no need to quadruple required paperwork.
About 3 percent of HSR filings get a second request asking for more information. Again, there is no need to quadruple these companies’ initial paperwork burdens. If regulators want more information, they are free to ask for it.
These numbers are no secret to the FTC. The data are published in the FTC’s and DOJ’s Annual HSR Reports. Conveniently, none of these reports were cited in Khan’s proposed changes. The congressional mandate for these reports terminated in 2000, but the agencies continue to publish them. If the FTC continually produces HSR annual reports, the least it can do is consult its own data when promulgating an HSR rule.
As we state in our comments, “If the FTC has good faith intentions to ‘improve the efficiency and effectiveness’ of the initial review process within their allotted budgets, the [proposed rule] would take a more serious, data driven, analysis of historical HSR enforcement to determine how best to do so.”
While HSR rules do need updating every so often, the current draft is ideological overkill. Regulators can already access all the information they need. The new rules would waste hundreds of millions of dollars and benefit only lawyers. Fewer companies would merge in the first place, which is likely the point. But this would harm consumers by denying them lower prices, new innovations, and advantages of scale.
Antitrust policy is supposed to benefit consumers. Khan’s latest assault ignores consumers in favor of advancing her ideological priors. If there must be new merger notification rules, they should come from Congress, rather than an unchecked ideologue.
Alex Reinauer is a research fellow at the Competitive Enterprise Institute (CEI). Ryan Young is a senior economist at CEI.