Brown Shoe Merger Policy and the Glorification of Waste

Document Type

Article

Publication Date

12-15-2023

Abstract

In 1959 a district court held that a merger involving Brown and Kenney shoe manufacturers was unlawful because it reduced costs and improved product quality, thus harming smaller rivals. The Supreme Court affirmed, leading to a 20 year period in which the lower courts routinely condemned mergers because they led to reduced costs, better quality products, or more efficient distribution. The cases were based on fact findings, just as merger cases today. They were also consistent with the times, which placed a low value on efficient use of resources. During the 1980s the ideology of merger enforcement changed so as to bring it into alignment with the antitrust laws generally. The law now favors competitive market output and sustainably low prices, as well as unhindered innovation and distribution. In the process the role of cost savings in merger law changed from being a rationale for condemnation to a defense. Because mergers also threaten increased market power, proof of these efficiencies should be hard, but not out of reach. The law was not the only thing that changed, however. While decisions in the 1960s and 1970s found merger efficiencies readily, today many people are skeptical of claims that mergers ever create significant efficiencies. This may be a consequence of enforcement bias, in which government challengers see what they want to see. In any event, courts need to evaluate mergers with an unbiased, fact-based perspective. This requires empirical studies to determine when mergers lead to sustainably higher prices, relating these results to the enforcement standards already incorporated into the both the 2010 and the draft 2023 Merger Guidelines. Those studies can be used to formulate prima facie merger standards that assume, or “credit,” a certain amount of efficiency. Proponents who wish to show more should have the burden to show merger-specific efficiencies of sufficient magnitude to drive prices back to premerger levels. This suggests two things, both of which are confirmed in recent empirical literature: 1) the approach taken in the 2010 and draft 2023 Guidelines is correct in principle, but 2) enforcement metrics are based on insufficiently aggressive presumptions, very likely even in the 2023 Guidelines.

Keywords

mergers, efficiencies, fact vs law, courts, antitrust

Publication Title

Competition Policy International

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