LPE Project - Merger Policy for a Fair Economy

Legal director Sandeep Vaheesan highlights the emerging pricing power of corporations amid the fallout of the COVID-19 pandemic.

The economic pathologies brought to the surface by the Coronavirus pandemic, such as price instability, fragile supply chains, and end-good shortages, are in part a story of corporate consolidation and lax merger policy. Contributing to or taking advantage of ongoing inflation, chief executive officers and chief financial officers—in industries ranging from agricultural chemicals and seeds to mattresses to rental cars—have boasted that they have been able to raise prices and boost profit margins.

The extraordinary pricing power of corporations in many sectors is a result of policy choices. Most notably, the Reagan administration effectively reinterpreted and neutered Section 7 of the Clayton Act, a strong antitrust law that Congress had enacted against corporate mergers. As the Supreme Court recognized in 1966, “Congress decided to clamp down with vigor on mergers” and “arrest[] a trend toward concentration in its incipiency before that trend developed to the point that a market was left in the grip of a few big companies.” Reagan’s Department of Justice (DOJ) and Federal Trade Commission (FTC), however, disregarded Congress’s judgment and pursued a pro-merger agenda, granting extraordinary power to executives and investment bankers to roll up markets through consolidation.

As two scholars wrote in 1988, the Reagan administration’s policy statements on merger law and dearth of anti-merger enforcement served “as an invitation to [corporate America] to merge with anyone.” Every subsequent administration, Democratic and Republican, has followed the Reagan administration’s permissive approach to merger enforcement. Indeed, they further loosened restrictions on merger activity on the assumption that mergers produce efficiencies and benefit consumers.

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