Mergers of competitors are conventionally challenged under the federal antitrust laws when they threaten to lessen competition in some product or service market in which the merging firms sell. Mergers can also injure competition in markets where the firms purchase. Although that principle is widely recognized, very few litigated cases have applied merger law to buyers. This article concerns an even more rarefied subset, and one that has barely been mentioned. Nevertheless, its implications are staggering. Some mergers may be unlawful because they injure competition in the labor market by enabling the post-merger firm anticompetitively to suppress wages or salaries. To the best of our knowledge no court has ever condemned a merger for this reason.
This paper examines a number of issues that are relevant to merger challenges in employment markets, focusing on the traditional rationale for challenging horizontal mergers – namely, that increased market concentration in labor markets threatens to facilitate coordinated interaction among employers that could lead to lower output and wage suppression in employment markets. Because most mergers are challenged prior to their occurrence, the threat is not of observed coordinated interaction, but rather of an “appreciable danger” that it may occur if the merger is permitted to proceed. We outline the major issues that enforcers are likely to encounter in assessing mergers threatening competitive harm in labor markets.
Mergers affecting the labor market require some rethinking of merger policy, although not any altering of its fundamentals. For example, mergers that threaten wage suppression are horizontal when the merging firms compete in the labor market, and this may be true even if they are not competitors in any product market. One useful way to think of the extent of horizontal competition in the market for employees is to look at the participants in the several “anti-poaching” cases that involve agreements among firms not to hire one another’s employees. This is quite consistent with the general principle of market definition in merger cases that a market consists of a grouping of firms that, if unified by a cartel, would have market power, or more specifically, an ideal collusive group.
Horizontal mergers threatening labor market competition present a significant competition problem but also unique legal issues. On significance, labor market concentration – measured by a small number of employers – is very high, perhaps as high or higher than product market concentration. This suggests that a mature policy of pursuing mergers because of harmful effects in labor markets could yield many cases, although prima facie we cannot predict how many. Also significant is that some of these mergers might be horizontal in the labor market but not in the product market in which the merging firms sell their goods or services. Once again, we do not predict the extent to which this is true, but it does suggest that those reviewing mergers cannot simply assume that lack of competition in the product market entails the same for the labor market. So to say that merger analysis focusing on labor will take evaluators into uncharted territory seems clear, and perhaps even more clearly for courts.
Marinescu, Ioana and Hovenkamp, Herbert J., "Anticompetitive Mergers in Labor Markets" (2019). Faculty Scholarship at Penn Law. 1965.
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