A decade ago, U.S. antitrust policy embarked on an experiment in expansive use of conduct remedies for mergers. Several major cases were settled with commitments that the merged firm – as a condition for approval of their mergers – would not engage in specific anticompetitive actions. However, a growing body of experience and research has found that conduct remedies are hard to write, even more difficult to enforce, and often simply ineffective. Despite this, over the past decade the agencies have not only failed to limit reliance on conduct remedies: they have continued to use them and even extended their use in more problematic directions.
This essay, available here, discusses the flaws inherent in conduct remedies, before describing three recent cases that raise the question of whether anything has been learned from recent experience with such remedies
Section II looks at the limitations of conduct remedies.
Conduct remedies represent an effort to allow a merger to proceed while preventing anticompetitive effects by prohibiting certain behaviours. These remedies can take the form of prohibitions – e.g. on foreclosure or leveraging, the exchange of competitively sensitive information, or retaliation against independent rivals – or prescriptions – e.g. mandatory access or must-supply conditions.
Conduct remedies suffer from several inherent defects. Most fundamentally, they inevitably create incentives for the firm to evade or avoid them. Evasion is facilitated by the fact that conduct remedies are difficult to write without ambiguities or omissions that firms can use to circumvent them. They are also costly to enforce, since offending actions can be hard to observe, and the agencies are not structured as on-going regulators.
Individual case experience includes numerous examples of flawed conduct remedies and failure to preserve competition. Broader economic evidence of the actual outcomes of conduct remedies corroborate these concerns. All of this led the DoJ’s Antitrust Division and the FTC to declare their strong preference for structural remedies — divestitures — in all but the most unusual of circumstances. However, in practice the agencies have continued to adopt conduct remedies.
Sections III to V describe a number of recent cases where behavioural remedies were imposed.
The first example is the 2010 merger between Ticketmaster, the dominant ticketing services company, and Live Nation, a very large concert promoter. The merger raised obvious vertical concerns, but also horizontal concerns since Live Nation had begun to deploy a ticketing services operation in competition with Ticketmaster. The Justice Department approved the merger, subject to an order that prohibited retaliation or threats against, or the imposition of terms to condition the provision of Live Nation Entertainment Events to a venue owner on the contracting of the merged entities’ ticketing services. In practice, the merged entity engaged in just such practices multiple times following the merger – on the basis that it was merely prohibited from not providing any events to venue owners, but was allowed to withhold the provision of some events. Faced with this state of affairs, in 2020 the DoJ merely submitted an amended order “clarifying” the original language adopted by the original 2011 order so as “to avoid any doubt” about its intent – after having allowed a full decade of consumer harm.
The second example concerns a purely vertical merger. Staples is one of two large superstores that sell office supplies to businesses and retail customers. Essendant is the larger of two national distributors of office supplies. In September 2018, Staples announced its intention to acquire Essendant. An obvious competitive concern with this vertical merger was that the merged firm would become the crucial supplier to its downstream rivals, so that it could raise price to those rivals (i.e. foreclose them) and thereby raise its own price and profit. The FTC majority nonetheless approved the acquisition in January 2019, subject to the creation of a firewall intended to prevent the exchange of competitively sensitive information between parts of the merged company’s operations. Like any firewall order, this one can be breached simply by transferring employees with access to the confidentially sensitive data.
The third and last example concerns the Sprint/TMobile merger, a four-to-three merger in mobile telecommunication services. This merger posed obvious horizontal concerns. When in July 2019 the DOJ settled with the parties, the settlement imposed a set of conditions on Sprint and T-Mobile, designed to create a new wireless competitor to replace the one whose elimination it was approving. Dish, a national satellite TV distributor with no wireless operation or experience, is expected to evolve into that new competitor based on some modest asset and operations divestitures, together with crucial services and assistance from the merged Sprint/T-Mobile. To this end, the settlement set out a long list of actions to be taken by the merging parties and by Dish. The problem is that this arrangement puts the fate of the new competitor fully in the hands of its incumbent rival, which has both the means and the incentive to prevent its emergence as a strong new firm.
Section VI concludes.
This essay posed the question: what has been learned about conduct remedies over the past decade? The Ticketmaster/Live Nation experience demonstrates that it may be easy for a firm subject to a conduct remedy to evade or avoid its intent and achieve the feared anticompetitive effects. The remedy for the Staples/Essendant merger rests entirely on unproven and to some degree doubtful restraints on information exchange. And the resolution of the Sprint/T-Mobile merger illustrates the lengths to which the antitrust agencies now seem to be prepared to use remedies that will not predictably or even plausibly resolve the competitive issues with a merger.
These experiences suggest that the hard lessons about conduct remedies have not in fact been learned.
Everywhere is the supremacy of structural remedies proclaimed, only for that supremacy to be given the lie by the recurring adoption of behavioural remedies. So seems to argue this paper. Whether this is indeed the case other than in the US is an empirical matter.
As regards the US, however, I can easily think of a reason for this state of affairs: the need for the agencies to bring a successful prohibitory action before the courts is bound to create incentives for the agencies to address potential competition issues in any way they can while avoiding litigation in all but the most straightforward cases.