Must-read: William Cavanaugh and Jack Figura: “Merrick Garland on Efficiencies”

Must-Read: William Cavanaugh and Jack Figura: Merrick Garland on Efficiencies: “A Garland appointment would likely be bad news for those who seek to justify mergers based on the efficiencies…

…In 2001 Judge Garland joined an opinion rejecting an efficiency defense in the merger context, and in a different context in a 1987 article, he critiqued an efficiency-based approach to the state action doctrine…. The ‘revisionist’ model of the state action doctrine, as put forth by UCLA law professor John Wiley and Seventh Circuit Judges Richard Posner and Frank Easterbrook, among others… incorporate[d] an ‘efficiency test,’ where a state or local regulation would be subject to federal antitrust scrutiny if it ‘restrain[ed] market rivalry without responding directly to a substantial market inefficiency.’… Garland… criticized the efficiency test as bearing ‘sobering’ parallels to the Supreme Court’s much-criticized decision in Lochner v. New York….

The role of efficiencies continues to be often debated in the merger context, where proponents of mergers have pointed to alleged post-merger efficiencies as a defense against challenges under Section 7 of the Clayton Act.  The Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission recognize the role that efficiencies may play…. In 2001, Judge Garland joined an opinion rejecting an efficiency defense in FTC v. H.J. Heinz Co…. cautioned that that any defendant relying on the defense would have to prove ‘extraordinary efficiencies’ that could not be obtained absent a merger and could not rely on ‘mere speculation and promises about post-merger behavior’…

Must-read: Larry Summers: “Corporate Profits Near Record Highs Is a Problem”

Must-Read: Larry Summers: Corporate Profits Near Record Highs Is a Problem: “The rate of profitability in the US is at a near-record-high level…

…All this might be taken as evidence that this is a time when the return on new capital investment is unusually high…. A high market value of corporations implies that ‘old capital’ is highly valued and suggests a high payoff to investment in new capital…. Yet matters are more complex. For some years now, real interest rates on safe financial instruments have been low and, for the most part, declining. And business investment is either in line with cyclical conditions or a little weaker than would be predicted…. This is anomalous…. An unusually high rate of investment would be expected to go along with a high rate of return on existing capital.

How can this anomaly be resolved? There are a number of logical possibilities…. [But] it could be that higher profits do not reflect increased productivity of capital but instead reflect an increase in monopoly power…. Is the increased monopoly power theory plausible?… (i) Many industries have become more concentrated; (ii) we are coming off a major merger wave; (iii) there is some evidence of greater profit persistence among major companies; (iv) new business formation has declined; (v) overlapping ownership of companies that compete has become more common with the rise of institutional investors; (vi) leading technology companies such as Google and Apple may be benefiting from increasing returns to scale and network effects…. Only the monopoly power story can convincingly account for the divergence between the profit rate and the behavior of real interest rates and investment…