In typical mergers, the main concern is that the parties will be able to raise the prices they charge purchasers. Some mergers, however, reduce competition among competing buyers, thereby reducing the prices that sellers receive for their products and services. These adverse “buy-side” effects may harm a wide variety of sellers, including workers.

 This paper, available here, examines the antitrust treatment of mergers that harm sellers. Its central claim is that harm to sellers in an input market is sufficient to support antitrust liability.

Part I considers mergers that increase classical monopsony power.

Monopsony is used here as the mirror image of monopoly, i.e. market power susceptible of affecting the price of inputs. Monopsony is a frequent concern in labour and agricultural markets. As with lawfully acquired monopoly power, antitrust law does not prohibit the exercise of lawfully acquired monopsony power, despite its economic costs. Yet antitrust problems do arise when buyers increase their monopsony power by combining forces. Agreements by competing buyers, especially of labour, have attracted enforcement attention. For example, the Department of Justice (DOJ) has challenged a hospital association’s coordinated purchase of so-called “per diem” nursing services, as well as agreements between leading technology firms not to “poach” each other’s employees, resulting in orders prohibiting both practices. Mergers between two input market competitors can manifest competitive harm through downward pricing pressure on input prices. The DOJ has challenged mergers that threatened to increase monopsony power, particularly among competing buyers of agricultural products, and among health insurer mergers (on the ground that they would suppress the amount paid to physicians and other health care providers).

The effects of increased monopsony power may be felt in output markets. When a monopsonist reduces input purchases, the monopsonist generally makes further adjustments, such as increasing its purchase of other inputs (e.g. substituting machinery for labour) and reducing the quantity or quality of its output (e.g. less coal from the mine, or lower patient staffing ratios at hospitals). As long as there is an adverse effect in an output market, condemnation for a violation of antitrust law is straightforward. The harder question arises if the adverse effects of increased monopsony power appear to be observed entirely in input markets – as will typically be the case if downstream markets are competitive. If antitrust serves only the welfare of downstream purchasers or final consumers, as some commentators suggest, then a case challenging increased monopsony power with effects observed only in input markets would not be sustainable. However, the Supreme Court has taken a different view. Several cases recognize that anticompetitive conduct that affects only input markets violates antitrust law. The Horizontal Merger Guidelines come to the same conclusion: section 12 explicitly indicates that in a merger of buyers, enforcement agencies focus on the harm to sellers. Effects on downstream markets are merely a secondary consideration.

Part II turns to mergers that increase bargaining leverage.

Some exercises of buyer power do not fit the classical monopsony model in which large buyers face atomistic sellers with no market power. Instead, transactions are mediated through bilateral bargaining between differentiated buyers and sellers. It is common for upstream and downstream firms to negotiate over whether the upstream firm’s products are included in a bundle of inputs offered for sale by the downstream firm, and the economic terms—such as prices, quantities, transfer payments, and contractual restraints—that are associated with making those upstream products available to customers of the downstream firm. Economic models of these negotiations, generally based on the concept of Nash bargaining, suppose that parties bargain over the division of surplus, or value, from reaching an agreement. One of the factors that influence these negotiations is bargaining leverage, which affects the magnitude of the surplus, and derives from each party’s walk-away value. The potential anticompetitive effect of a merger in this respect derives from the latter: by depressing the walk-away value to firms opposite the merging parties, a merger can enable the merging parties to increase their profits at the expense of those against whom they negotiate.

As regards mergers between buyers, the authors argue that a bargaining-based harm suffered by an upstream seller is actionable, just like a bargaining-based harm suffered by a downstream purchaser. The cases discussed in Part I establish that a buy-side harm is sufficient, and increased bargaining leverage is an actionable harm as long as there is a harm to the competitive process that lowers the welfare of the merging parties’ trading partners. Despite this, the authors do not present any case that has been decided on this basis; instead, they discuss initiatives by the DoJ and the FTC that seem to support and dismiss, respectively, such a theory of harm.

Part III addresses whether and when lower input prices offer a cognisable defence to an otherwise anticompetitive merger.

In some instances, lower input prices can be considered a benefit of the merger, rather than (a manifestation of harm. Agencies and courts evaluate such an effect as part of a so-called “efficiencies defence.” Efficiencies are deployed to rebut a plaintiff’s evidence that the challenged transaction will tend to raise prices in output markets. In particular, lower input prices, passed through to purchasers, may produce downward pressure on output prices.

The defence applies only to the extent that the lower prices reduce marginal costs, and those benefits are passed through to purchasers. The key factual question thus becomes: are the input savings large enough, and passed through to purchasers to a sufficient degree, such that there is no net harm in the output market? However, a merger might reduce input prices by reducing competition in input markets, rather than by increasing efficiency. Might these savings be passed through, and if so, could the savings be recognised in defence of the merger? The answer is no, because purported purchaser benefits premised on reductions in competition are not cognisable. This conclusion depends on the recognition that the harm to sellers from lost upstream competition is actionable under antitrust law. Otherwise, a defendant may argue that purchasers in output markets are benefited, on balance, thanks to a pass-through of the savings.


This paper presents a solid – if US-law-centric – review of theories of harm surrounding mergers creating monopsony power. It provides a good overview of the topic even if my impression is that the argument that effects on upstream markets suffice to establish antitrust harm is more controversial than the authors make seem. Some commentators insist upon an adverse effect on the quantity or quality (i.e. output), and not only purchased, in order to establish an anticompetitive harm. The authors as much as acknowledge this in their discussion of the FTC’s approach to the Horizontal Guidelines and in devoting a section to making the argument that harm to sellers is actionable under antitrust law. However, they make their case strongly and I believe theirs is the dominant view. I may be wrong, however, and I am not an expert in US law, so please do not take me on trust on this.

Finally, I also have some reservations about the argument concerning efficiencies. Naturally, I have nothing to say on whether benefits flowing from anticompetitive conduct are cognisable as a defence. However, given questions about whether conduct is anticompetitive or not in the first place, I do not think it will be simple to determine whether a specific factual scenario is anticompetitive or efficient. Consider a reduction in the cost of inputs that come from both increased market power and economies of scale; or that results from an increase in buyer market power that falls below a substantial lessening of competition. Is this a cognisable benefit or should it be ignored? In effect, the argument may even become circular, since if one finds that a merger has anticompetitive effects in buyer markets, then supposed cost efficiencies resulting therefrom are ipso facto not cognisable, even though they should be relevant to determine whether the merger is anticompetitive in the first place. The section dealing with this is very short; I would have liked to see it developed more.

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