As the Department of Justice and Federal Trade Commission beaver away at the long-awaited revision of the Merger Guidelines, we should avoid the temptation of seeing the history of the Guidelines as an evolution from a “benighted past to a glorious present,” despite the insistence of the many scholars who write about them. This Whig history says that the Supreme Court badly botched merger law in its foundational 1962 opinion in Brown Shoe v. U.S., where it held or implied that a merger that substantially increases concentration is illegal regardless of its impact on prices. The 1968 Merger Guidelines stepped back from the abyss by reinterpreting the goal of merger law as “price competition” and recognizing that “efficiencies” may justify an otherwise impermissible merger, albeit only in “exceptional circumstances.” Then, in successive versions (in 1982, 1992, 1997, and 2010), the Guidelines introduced additional and increasingly sophisticated economic methods, switched the emphasis from concentration to the impact of mergers on prices, and recognized a more robust role for efficiencies in merger analysis. All that is needed today is a bit of tightening up along the lines that have already been set out.

This Whig view sands away the edges of a complicated—and more interesting—history. In Brown Shoe and other opinions, the Supreme Court took Congress at its word and barred mergers that substantially lessen competition. The Court understood that Congress saw high prices as one harm among many others (including, above all, political power) that may occur when corporations rapidly achieve scale through acquisitions. Congress feared oligopolies and monopolies and sought to keep firms to a moderate size by eliminating large-firm mergers as a path to growth (“organic growth” of course remained a lawful option). While the Court vacillated between the functionalism of Brown Shoe and the formalism of Philadelphia National Bank, it never departed from its commitment to a “competition test” based on market structure—later formalized as concentration ratios or HHIs.

One must squint to find any repudiation of this view in the 1968 Guidelines, which on the contrary faithfully adopted the Court’s competition test. The repudiation came later. The 1982 and 1984 Guidelines replaced the Supreme Court’s competition test with the efficiency test first proposed by Oliver Williamson in his famous 1968 article and propagated by Robert Bork under the misleading label of the consumer welfare standard. The Reagan-era test was actually a total surplus test that counted producer as well as consumer surplus (“If the parties to the merger establish by clear and convincing evidence that a merger will achieve such efficiencies, the DOJ will consider those efficiencies in deciding whether to challenge the merger”). That might explain why the DOJ brought zero merger challenges in 1986 and 1987, at the height of a merger wave.

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