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Procompetitive efficiencies

  • Procompetitive efficiencies (2023 Merger Guidelines 3.3): not as strong of a defense as entry

The Agencies will not credit vague or speculative claims, nor will they credit benefits outside the relevant market that would not prevent a lessening of competition in the relevant market

Agencies examine whether the evidence presented by the merging parties shows each of the following (come directly from case law):

  • (1) Merger specificity: merger must create efficiencies that the parties would not have created on their own
  • (2) Verifiability: it is insufficient for parties to simply state that there will be efficiencies, they must provide reasons why efficiencies will take place
    • E.g.: manufacturing, easy to calculate efficiency of output based on combining two complementary facilities
  • (3) Prevents a reduction in competition: efficiencies must be passed to customers/transaction partners
    • This is one place where consumer welfare standard pops up: only efficiencies that provide benefits to consumers bolster D’s defense (insufficient to show that efficiencies benefit the merging firms)
  • (4) Not anticompetitive: efficiencies must not be the result of anticompetitive conduct
  • Court interpretations of efficiency: trend toward recognizing efficiency as a defense

“Possible economies cannot be used as a defense to illegality in C7 merger cases.” (FTC v. Proctor & Gamble, 1967)

“Efficiencies in the relevant market are an important consideration in predicting whether the acquisition would substantially lessen competition.” (FTC v. University Health, 1991)

“The trend among lower courts is to recognize the efficiencies defense.” (FTC v. H.J. Heinz, 2001)

Caselaw​

U.S. v. H&R Block (2011) (how courts treat efficiency claims)

Holding: court denies that there will be post-merger efficiencies

  • Claimed efficiencies are not demonstrably merger specific, they all exist separate from the merger
    • TaxACT’s low labor costs
    • TaxACT’s cost consciousness
    • In-sourcing functions
  • IT related efficiencies are not entirely merger specific: TA having a good IT department is not an excuse for HRB not having a good IT department
  • TaxACT’s cost estimates are based on judgment (not verifiable, look speculative)
  • HRB’s prior merger did not achieve its projected savings, so court notes that HRB’s efficiency claims are highly suspect

Facts: DDIY tax software.