FTC Commissioner Thomas B. Leary Speaks on the 'Ongoing Evolution' of Efficiencies in Antitrust Law

In remarks presented today at the 2002 Fall Forum of the American Bar Association's (ABA) Section of Antitrust Law in Washington, D.C., Federal Trade Commissioner Thomas B. Leary discussed the treatment of efficiencies in antitrust law, providing a historical perspective on how antitrust policy concerning efficiencies has evolved over the past 25 years based on academic learning, rather than fluctuating as a result of political change. The remarks, which are available on the FTC's Web site, also included an extensive discussion of current issues in the antitrust analysis of efficiencies, both in the merger and non-merger arenas.

Both the history and policy issues surrounding the antitrust view of efficiencies are complex, according to Leary, and do not lend themselves to easy generalizations. With this premise, Leary discussed the historical role of efficiencies in antitrust analysis, beginning with the "hostility or conscious disregard" exhibited during the 1960s and into the mid-1970s. This was followed by a "transition to the economics-oriented antitrust that we observe today." In retrospect, "what is remarkable is the speed in which this new learning was accepted" in the antitrust community, he said.

Moving next to his current views about merger efficiencies, Leary stressed that because very few merger cases are litigated, "the internal treatment of merger efficiencies by the agencies is of critical importance" to external parties. In their internal processes, the agencies have been willing "to entertain efficiency claims beyond those that can be quantified as cost reductions," an idea he called of "potentially of immense importance," Leary said. This internal process works effectively, he said, and is more transparent than it might appear, but he acknowledged that there were a number of current issues in the treatment of contested mergers.

Most significant are the "problems of quantifying and comparing predictions" about the offsetting effects of higher concentration and greater efficiencies. He also discussed the "pass-on" issue, examining whether efficiencies count "only to the extent they are passed on to consumers," as well as "significant efficiencies that tend to be ignored" because, while significant, "they may be hard to quantify, or even identify." Such efficiencies, he said, "must be there somewhere if a law-abiding company maintains a leading market position over an extended period of time," but "we tend to ignore the less-tangible economies in the formal decision process because we simply do not know how to weigh them." Leary stressed that "[w]e should do more to reconcile our public and non-public practice." Finally, he discussed the significance of evidence on failed mergers, but cautioned that "it would be wrong . . . to conclude that a more proactive merger policy is appropriate simply because a lot of mergers do not deliver the expected benefits."

In concluding his speech, Leary said, "The formidable array of challenging issues described in [these remarks] may create the erroneous impression that antitrust law's treatment of efficiencies is in bad shape. This is not so. The historical review demonstrates that there has been an immense and continuing improvement over the last 25 years, in both merger and non-merger law. A lot of silly ideas have been discarded and there is near-universal agreement that efficiencies are important. The fact that this change has been primarily driven by scholarship is a remarkable demonstration of the power of ideas."

Copies of the Commissioner's remarks are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.