Prior Bad Acts And Merger Review

By Michael A. Carrier & Gwendolyn J.Lindsay Cooley, Rutgers Law School & Wisconsin Department of Justice

Consider a merger of two firms in the pharmaceutical industry. Each has previously engaged in antitrust violations. In considering whether to allow the merger, how much weight should the antitrust agencies give to these prior bad acts? How important should this evidence be to courts? These critical questions have not received sufficient attention.

In the 2010 Horizontal Merger Guidelines, the federal antitrust agencies address collusion, one of the two main types of anticompetitive behavior underlying merger challenges. We support the Guidelines’ attention on this conduct. And we believe that merger enforcement can be improved in this area because the agencies have not been consistent in recognizing prior collusion.

The second main type of prior conduct, unilateral behavior, presents even more uncertainty as the Guidelines do not address it. We offer a framework that suggests considering prior bad acts when (1) the markets are similar, (2) there is a connection between the conduct and the markets covered by the merger, and (3) there is sufficient proof of the prior bad acts.

We supplement our discussion of collusive and unilateral behavior by offering case studies involving mergers for which there was strong evidence that the companies had previously engaged in this conduct. And we conclude by explaining why, in mergers in which prior bad acts counsel agency action, the array of potential relief should include not just a lawsuit to block the merger but also behavioral remedies.

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