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Abstract

Mounting public concern with the exercise of market power in concentrated markets demands a response. While modern antitrust emphasizes the prevention of market power over reaction to its exercise, it does contain one indirect but potentially important tool for addressing problems with already existing concentration and market power: the often-overlooked theory of resistance to anticompetitive entrenchment in merger enforcement. This article explores how traditional concerns with the entrenchment of market power might be updated and reintroduced to serve as a vehicle for addressing problematic markets in the modern antitrust framework. The article explains this theory of anticompetitive entrenchment, its limits, and appropriate conditions for its use, in the context of two specific applications: (1) tacit collusion among oligopolists, and (2) the exploitation of market power by a dominant firm in a protected position.
1133
Anticompetitive Entrenchment
Sean P. Sullivan*
INTRODUCTION
Frustration with the faltering state of competition pervades the news
today. A recent article in the Wall Street Journal starts, “Across the
ideological spectrum, the calls are growing louder: Washington must do
more to rein in big business.”
1
It goes on to cite numerous industries in
which only three or four competitors account for nearly all sales.
2
An
article in the Harvard Business Review states: “There’s no question that
most industries are becoming more concentrated.”
3
A bill currently before
the U.S. Senate declares that “unprecedented consolidation is reducing
competition and threatens to place the American dream further out of reach
for many consumers in the United States.”
4
Scholars are among the concerned commentators in this dialogue.
Joseph Stiglitz, 2001 laureate of the Nobel Prize in economics, recently
wrote that “[e]vidence of rising market power can be found almost
anywhere” and that “[i]n sector after sector, from little things like cat food
to big things like telecoms, cable providers, airlines, and technology
platforms, a few firms now dominate 75-90% of the market, if not more.”
5
Jonathan Baker, former director of the Federal Trade Commission’s (FTC)
Bureau of Economics, admits “[t]he U.S. economy has a ‘market power’
* Associate Professor of Law, University of Iowa College of Law. Contact the author at sean-
sullivan@uiowa.edu. I am grateful to Christopher Drahozal, Christopher Leslie, Daniel Sokol, Robert
Tovsky, Spencer Weber Waller, and participants at the 2019 University of Florida Competition
Conference, the 2019 University of Kansas Law Review Symposium on Antitrust Law & Policy in
the 21st Century, and a faculty workshop at the University of Iowa for helpful comments and
suggestions on earlier drafts of this paper.
1
. Jacob M. Schlesinger et al., Tech Giants Google, Facebook and Amazon Intensify Antitrust
Debate, WALL STREET J. (June 12, 2019, 6:00 PM), https://www.wsj.com/articles/tech-giants-google
-facebook-and-amazon-intensify-antitrust-debate-11559966461 [https://perma.cc/6TUJ-V2UJ].
2
. Id. (identifying four drug store chains, four airlines, four railroads, and several banking giants
as controlling most of their respective industries).
3
. David Wessel, Is Lack of Competition Strangling the U.S. Economy?, HARV. BUS. REV.,
Mar.Apr. 2018, at 106, 107.
4
. Consolidation Prevention and Competition Promotion Act of 2019, S. 307, 116th Cong. §
2(a)(9) (2019) (referred to the Committee on the Judiciary on Jan. 31, 2019).
5
. Joseph E. Stiglitz, Commentary, Market Concentration Is Threatening the US Economy,
PROJECT SYNDICATE (Mar. 11, 2019), https://www.project-syndicate.org/commentary/united-states-
economy-rising-market-power-by-joseph-e-stiglitz-2019-03?barrier=accesspaylog [https://perma.cc
/4D5J-WL2L].
1134 KANSAS LAW REVIEW [Vol. 68
problem, notwithstanding our strong and extensive antitrust institutions.”
6
In economics, a vibrant literature has suddenly sprung up around exploring
the rise in national industrial concentration measures and the simultaneous
decline in various measures of competitive dynamics and productivity.
7
Fingers point to antitrust enforcement failures as the source of these
problems; antitrust law is accused of failing to keep concentration in check
and to keep market power from expanding beyond control. Thus, a recent
New York Times opinion blames enforcement “meekness” for rising
consolidation.
8
And an article in the Wall Street Journal asserts, “The time
has come to reinvigorate antitrust enforcement.”
9
Many commentators
agree with these sentiments and seek stronger antitrust policies to address
them.
10
But that’s about where consensus ends.
As Carl Shapiro observes, not since the election of 1912 has antitrust
played such a prominent role in politics and policy discussions.
11
Some,
like Senator Amy Klobuchar, would augment existing antitrust standards
with thresholds tied to market structure or asset holdings.
12
Others, like
Senator Elizabeth Warren, would strengthen antitrust by sidestepping
much of the modern frameworksubstituting political intervention and
business regulation in its place.
13
Others yet would reform antitrust by
changing the focus of this area of law to account for a variety of
“noneconomic” desiderata: the reduction of wealth disparities,
advancement of labor interests, protection of small business, and
6
. Jonathan B. Baker, Market Power in the U.S. Economy Today, WASH. CTR. FOR EQUITABLE
GROWTH (Mar. 20, 2017), https://equitablegrowth.org/market-power-in-the-u-s-economy-today/
[https://perma.cc/LZH3-AXV6].
7
. See infra notes 3336, 4244, 4952 and accompanying text.
8
. David Leonhardt, Opinion, The Monopolization of America, N.Y. TIMES (Nov. 25, 2018),
https://www.nytimes.com/2018/11/25/opinion/monopolies-in-the-us.html [https://perma.cc/ZPV9
-XSTM].
9
. William A. Galston, The Perils of Corporate Concentration, WALL STREET J. (June 19, 2018,
7:06 PM), https://www.wsj.com/articles/the-perils-of-corporate-concentration-1529449577 [https://
perma.cc/FQC9-URS4].
10
. See Christine S. Wilson, Commr, Fed. Trade Commn, Why We Should All Play by the
Same Antitrust Rules, from Big Tech to Small Business, Address at the American Enterprise Institute
2 (May 4, 2019), https://www.ftc.gov/system/files/documents/public_statements/1527497/wilson
_remarks_aei_5-4-19.pdf [https://perma.cc/LGP8-TGEP] (commenting that [m]any complain that
[large high technology] firms wield too much power in the marketplaceand that many policymakers
have advanced what they characterize as simple fixesto this problem).
11
. Carl Shapiro, Antitrust in a Time of Populism, 61 INTL J. INDUS. ORG. 714, 715 (2018).
12
. See S. 307, 116th Cong. § 3 (2019) (Klobuchar sponsored the bill).
13
. See, e.g., Elizabeth Warren, Heres How We Can Break Up Big Tech, MEDIUM (Mar. 8,
2019), https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c
[https://perma.cc/K5HZ-3T65]; Senator Elizabeth Warren, Reigniting Competition in the American
Economy, Keynote Remarks at New Americas Open Markets Program Event (June 29, 2016),
https://www.warren.senate.gov/files/documents/2016-6-29_Warren_Antitrust_Speech.pdf [https://
perma.cc/FG5V-44CV] [hereinafter Warren, Reigniting Competition]. See also TIM WU, THE CURSE
OF BIGNESS: ANTITRUST IN THE NEW GILDED AGE 12739 (2018) (suggesting expansive antitrust
reforms).
2020] ANTICOMPETITIVE ENTRENCHMENT 1135
suppression of political influence, to name a few.
14
There is room to debate the merits of these proposals. Klobuchar’s
proposals include legislation that could allow mergers of noncompeting
firms to be enjoined on the dubious basis of the dollar value of firm
assets.
15
Warren’s calls to break up big business recall some unsuccessful
past efforts to achieve competitive gains by merely ordering the
dissolution of large companies.
16
And the suggested insertion of
potentially contradictory social objectives into the antitrust framework
conjures memories of the confused and indeterminate reasoning that
resulted from attempts to pursue pluralistic objectives in the early days of
antitrust.
17
Of course, proponents of these reforms would rightly press that
important benefits may flow from these strategies, and that the potential
drawbacks are debatable.
What is beyond debate, however, is that all these reforms entail major
changes for antitrust policy. That’s basically the point. But before we
overhaul a competition framework that has been decades in the making,
we might first ask whether anything in the existing framework already
provides a way of addressing the concentration and market power
concerns at issue in the current reform movement. Indeed, this paper
suggests that antitrust may today stand ready to address at least some of
these concerns through its currently overlooked ability to intervene in
mergers and acquisitions that serve to entrench market power in
problematic markets. A brief digression on antitrust history will help
explain what I mean.
In contrast to modern antitrust’s almost exclusive focus on preventing
accretions of market power, U.S. competition policy was, in the not too
distant past, also willing to work in the reverse direction: using antitrust
lawmerger policy, in particularto remedy ailing markets and facilitate
14
. See Sean P. Sullivan, Antitrust Amorphisms, CPI ANTITRUST CHRON., Nov. 2019, at 1, 3,
https://www.competitionpolicyinternational.com/antitrust-amorphisms/ [https://perma.cc/2CGQ
-RC7G] (discussing several of the diverse social objectives identified with recent antitrust reform
efforts); Herbert Hovenkamp, Whatever Did Happen to the Antitrust Movement?, 94 NOTRE DAME L.
REV. 583, 583, 58889 (2018) (similar).
15
. S. 307, 116th Cong. § 3 (2019).
16
. See, e.g., Warren, Reigniting Competition, supra note 13; Bell Atl. Corp. v. Twombly, 550
U.S. 544, 56768 (2007) (observing, and treating as unremarkable, the failure of either initial
divestiture or subsequent legislation to incentivize the components of the broken-up Bell System to
compete with each other); cf. Herbert Hovenkamp & Carl Shapiro, Horizontal Mergers, Market
Structure, and Burdens of Proof, 127 YALE L.J. 1996, 2005 (2018) (commenting that [e]fforts to
proactively deconcentrate industries can easily be counterproductive if they result in the most
efficient firms being broken up, prevent scale economies from forming, or chill efforts to compete
because success would only mean forced divestiture); D. Daniel Sokol, Antitrusts Curse of Bigness
Problem, 118 MICH. L. REV. (forthcoming 2020) (reviewing WU, supra note 13, and critiquing the
administrability of attempts to intervene against bigness on populist grounds).
17
. Cf. Hovenkamp, supra note 14, at 585 (commenting that many populist goals are
unmeasurable and fundamentally inconsistent, although with their contradictions rarely exposed).
1136 KANSAS LAW REVIEW [Vol. 68
competition where it was seen to be lacking.
18
In short, the strategy was
to prevent the entrenchment of already-existing concentration and market
power by taking an especially restrictive position on mergers in already
problematic markets. This approach featured prominently in important
merger cases of the 1960s and 70s but fell out of fashion during the
evolution of the modern antitrust framework.
19
This article considers how
it might be brought back, exploring how renewed opposition to
anticompetitive entrenchment could address concentration and market
power concerns without requiring massive changes to current antitrust
policy.
To summarize the argument, where careful analysis suggests that a
relevant market is highly concentrated, and that competitive performance
is diminished as a result, it is within the scope of existing merger law to
foreclose mergers and acquisitions in this market even without specific
proof that something like price elevation would result therefrom. The
normative basis for such an injunction is not the usual claim that the
merger or acquisition would make things worse in the relevant market.
Rather, the basis for injunction is concern with current competitive
conditions, and a corresponding public interest in preserving opportunities
for the grind of competitive frictions to make things better in the future.
20
The concern is, in a nutshell, about the entrenchment of an already
anticompetitive status quo.
What I propose as a renewed theory of anticompetitive entrenchment
traces to seminal cases in merger law and shares features with modern
modes of antitrust analysis. It relates to the antitrust analysis of potential
competition cases, but is distinct from and less controversial than potential
competition doctrine.
21
It relates to concerns about the exercise of
monopoly power, but is more focused, effective, and administrable than
other statutory bases for addressing these concerns.
22
It relates to forward-
looking prediction of competitive effects in modern merger analysis, but
requires less specificity in the prediction of future competition where
competitive conditions are already bad.
23
Finally, it relates to what
18
. See infra Section III.A.
19
. See infra notes 7680 and accompanying text.
20
. See infra Section III.B.
21
. See PHILIP E. AREEDA & HERBERT HOVENKAMP, 5 ANTITRUST LAW ch. 11B-1, at 5479 (4th
ed. 2016).
22
. See William E. Kovacic & Marc Winerman, Competition Policy and the Application of
Section 5 of the Federal Trade Commission Act, 76 ANTITRUST L.J. 929, 929, 94043 (2010) (noting
judicial narrowing of the range of conduct condemned by Section 2 and raising cautions about the use
of Section 5 of the FTC Act as a means of addressing single-firm conduct).
23
. See U.S. DEPT OF JUSTICE & FED. TRADE COM MN, HORIZONTAL MERGER GUIDELINES §§
6–7 (2010), https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf [https://
2020] ANTICOMPETITIVE ENTRENCHMENT 1137
Herbert Hovenkamp has referred to as “prophylactic” merger policy,
suggesting an important extension of the prophylactic potential of merger
control.
24
It is a powerful tool in need of careful application, but it is not
a new approach to antitrust. Rather, it is “old antitrust,” updated to fit the
modern framework and to address the concerns of the present day.
The remainder of this article proceeds as follows. In Part II, I collect
evidence on the state of concentration and market power. While the
evidence of a problem may not impress every reader, there is no basis for
the outright rejection of popular concerns about rising concentration and
market power. In short, a reasonable concern has been raised, and antitrust
should supply an answer. In Part III, I explain how a revitalized concept
of anticompetitive entrenchmentinformed by the principles of modern
economic analysiscould help to address this concern. I illustrate the
potential of this entrenchment approach using two examples. First, I show
in Part IV how a theory of anticompetitive entrenchment could help to
address tacit collusion in a tight oligopoly. Second, I show in Part V how
this approach could apply to a dominant firm in a market protected by scale
or network effects. Throughout Parts III to V, discussion considers
possible objections to this entrenchment theory and what it can
realistically achieve.
II. IS THERE A MARKET CONCENTRATION PROBLEM?
Notwithstanding the sweeping claims of some commentators, it is
actually quite difficult to identify broad trends in market concentration and
market power. Market definition, as the term is used in antitrust, has little
to do with lay concepts of industries or lines of commerce, which makes
national and even “industrial” concentration data imperfect proxies for the
subject of concern.
25
Moreover, because market power can arise from
many sources, identifying the market power that derives specifically from
market concentration can be a difficult task.
Subject to these disclaimers, however, available evidence appears to
support three analogs of now-popular claims. First, seller concentration
appears to have been rising in recent decades. Second, market power
appears to have risen as well, particularly in the last decade. Third, there
perma.cc/5JBB-STKV] [hereinafter 2010 HORIZONTAL MERG ER GUIDELINES] (describing forward-
looking merger analysis, mainly concerned with predicting future competitive harm); Gregory J.
Werden & Kristen C. Limarzi, Forward-Looking Merger Analysis and the Superfluous Potential
Competition Doctrine, 77 ANTITRUST L.J. 109, 110 (2010) (arguing that potential competition
concerns can be addressed in the usual Section 7 analysis, without any special doctrine or approach).
24
. See generally Herbert Hovenkamp, Prophylactic Merger Policy, 70 HASTINGS L.J. 45 (2018)
(discussing the prophylactic reach of merger policy under the Clayton Act).
25
. See David Glasner & Sean P. Sullivan, The Logic of Market Definition, 83 ANTITRUST L.J. §
I.A (forthcoming 2020).
1138 KANSAS LAW REVIEW [Vol. 68
is currently no explanation of the latter trend that can obviously eliminate
rising concentration as a plausible contributor to rising market power in at
least some markets. The following discussion walks through each of these
claims in turn.
A. Seller Concentration Seems to Be Rising
Concerns about seller concentration reflect the everyday observations
of consumers. Familiar examples illustrate the recent growth in
concentration in certain bands of commerce. The number of major airlines
has decreased from as many as nine at the turn of the century to only four
today.
26
There are fewer yet on many regional flight paths.
27
The number
of major brewers has declined to the point where the vast majority of U.S.
beer sales now trace to only two companies.
28
In many cities, hospital
service providers long ago reached worrying concentration levels,
29
and
recent data suggest that primary care providers may now be following
suit.
30
This is to say nothing of the small number of tech giants like
Google, Amazon, and Microsoft that dominate so many consumer-facing
technologies. While the examples could easily go on, the plural of
anecdote is not data, and a careful review of the evidence would ask
whether these individual cases are reflected in broader national trends.
Subject to the imprecision of treating things like NAICS industry
classifications as antitrust relevant markets,
31
the answer appears to be
“Yes.” Looking at Economic Census data, for example, Sam Peltzman
reports that concentration in manufacturing industries, which had been
26
. See, e.g., BAKER, supra note 6, at 5 (A number of major industries, including airlines . . .
have become substantially more concentrated over recent decades. The number of major U.S. airlines,
for example, including regional and low-cost carriers, has declined after multiple mergers, from nine
in 2005 to four today.). Concentration raises special concerns when it is accompanied by substantial
horizontal shareholding. See generally Einer Elhauge, Horizontal Shareholding, 129 HARV. L. REV.
1267 (2016) (providing a powerful demonstration of how horizontal shareholding can exacerbate
competitive concerns in concentrated markets).
27
. See, e.g., Wessel, supra note 3, at 108 (Although competition is stiff on the most heavily
traveled air routes, 97% of routes between pairs of cities have so few competitors that standard antitrust
metrics would deem them highly concentrated.’”).
28
. See, e.g., Baker, supra note 6, at 5 (Anheuser-Busch InBev SA/NV and Molson Coors
Brewing Co. account for nearly three-fourths of the beer sold in the United States . . . .”); Wessel,
supra note 3, at 108 (Despite the proliferation of craft breweries, four brewers hold nearly 90% of
the U.S. beer market.).
29
. See, e.g., Brent D. Fulton, Health Care Market Concentration Trends in the United States:
Evidence and Policy Responses, 36 HEALTH AFF. 1530, 153034 (2017) (noting that the mean HHI in
MSA-defined hospital markets is now in excess of 5,500).
30
. Id. at 153335 (noting that the average HHI in primary care physician markets increased by
nearly twenty-nine percent from 2010 to 2016).
31
. See generally Glasner & Sullivan, supra note 25 (discussing the difference between
industrylines and the boundaries of antitrust relevant markets).
2020] ANTICOMPETITIVE ENTRENCHMENT 1139
roughly stable between 1963 and 1982,
32
took a steady upward turn under
the modern antitrust regime, with increases in concentration two to four
times more likely than decreases in the decades following 1982.
33
Peltzman summarizes this finding with the ominous conclusion that “[a]s
soon as the ink was drying on the first Merger Guidelines, concentration
began increasing in U.S. manufacturing.”
34
Broadly similar conclusions
are reported outside of manufacturing. Using the merged
CRSP/Compustat database, Grullon, Larkin, and Michaely report that
concentration, as measured by HHI, increased in about 80% of industries
from 1997 to 2014, with a median increase of about 40% and a mean
increase of about 90%.
35
These national averages mask significant
heterogeneity in industry-level data,
36
but are directionally consistent with
the premise that seller concentration is rising in many sectors of the
economy.
B. Market Power Seems to Be Rising, Too
Of course, evidence of growing seller concentration is not itself a bad
thing. Markets may become concentrated for benign reasons, such as
technological innovation and the emergence of new economies of scale or
fixed costs of production. The worry is that growing concentration is
enhancing market power. Thus, a threshold question is whether market
power is growing as well.
Again, everyday experience provides stark examples. Nobody who
has flown on domestic airlines in recent years can seriously doubt the
exercise of market power by these companies.
37
Similar, but less personal,
evidence of rising market power can be found in economic research.
32
. Sam Peltzman, Industrial Concentration Under the Rule of Reason, 57 J. L. & ECON. S101,
S10506 (2014).
33
. Id. at S11213.
34
. Id. at S11718.
35
. Gustavo Grullon et al., Are U.S. Industries Becoming More Concentrated?, 23 REV. FIN. 697,
704 (2019). There are reasons to be skeptical about the use of Compustat data in measuring
concentration. See, e.g., Ashiq Ali et al., The Limitations of Industry Concentration Measures
Constructed with Compustat Data: Implications for Finance Research, 22 REV. FIN. STUD. 3839, 3840
(2009) (discussing the limitations of Computstat data as a basis for measuring industry concentration,
including its omission of private firms). Grullon et al. do, however, report similar findings when
private firms are included in model specifications. See Grullon et al., supra, at 699.
36
. See, e.g., Peltzman, supra note 32, at S11215 (noting significant differences in trends
between consumer-good and producer-good manufacturing industries); Leila Davis & Özgür
Orhangazi, Competition and Monopoly in the U.S. Economy: What Do Industrial Concentration Data
Tell? 23 (Political Econ. Research Inst. Working Paper Series, Paper No. 492, 2019) (identifying
particular concentration growth in retail and information services industries).
37
. Cf. Thomas Philippon, The U.S. Only Pretends to Have Free Markets, THE ATLANTIC (Oct.
29, 2019), https://www.theatlantic.com/ideas/archive/2019/10/europe-not-america-home-free-market
/600859/ [https://perma.cc/CR97-QBXR] ([U.S. airline] profits per passenger mile are now about
twice as high as in Europe, where low-cost airlines compete aggressively with incumbents.).
1140 KANSAS LAW REVIEW [Vol. 68
Economists studying the now highly concentrated beer industry, for
example, report what appears to be patterns of collusive pricing among the
major brewers.
38
Likewise, economists studying the now highly
concentrated airline industry report what appears to be collusive pricing
among the major airlines.
39
And while economists studying the growth in
hospital concentration look for efficiency and service benefits resulting
from past mergers, they often uncover rising prices and stagnant or
declining service quality instead.
40
Again, these observations are consistent with trends in national data.
By several accounts, growth in national estimates of market power has
roughly paralleled that in concentration over recent decades. A recent
study by De Loecker, Eeckhout, and Unger reports thatafter a long
period of stabilityaverage profits began a steep rise in the 1980s, which
has continued to this day.
41
The study observes that margins relative to
marginal costs increased from about 21% in 1980 to about 61% in 2016.
42
Using BEA data on corporate profits, Shapiro notes a similar increase in
profits as a percent of GDP over the past 30 years.
43
Absent a better
explanation, Shapiro interprets this as a sign that “U.S. corporations really
are systematically earning far higher profits than they were 25 or 30 years
ago.”
44
C. Rising Concentration Seems to Be Creating Market Power
Finally, having noted evidence of both growing seller concentration
and growing market power, a careful researcher should ask whether the
former is causing the latter. Causal connections are notoriously difficult
to prove in economics, and this is no exception. With that said, the
evidence is at least consistent with the inference that growing
38
. Nathan H. Miller & Matthew C. Weinberg, Understanding the Price Effects of the
MillerCoors Joint Venture, 85 ECONOMETRICA 1763, 178889 (2017).
39
. Federico Ciliberto et al., Collusive Pricing Patterns in the US Airline Industry, 62 INTL J.
INDUS. ORG. 136, 13738 (2019); see also Kevin Mitchell, Spoiler Alert Airline Admits Its Anti-
Competitive Ways, INSIDE SOURCES (July 9, 2018), https://www.insidesources.com/spoiler-alert
-airline-admits-anti-competitive-ways/ [https://perma.cc/2HLG-3BDD] (providing a popular press
account of anticompetitive behavior among major airlines).
40
. See Martin Gaynor et al., The Industrial Organization of Health-Care Markets, 53 J. ECON.
LITERATURE 235, 24751 (2015); Martin Gaynor & Robert Town, The Impact of Hospital
Consolidation, SYNTHESIS PROJECT (2012), https://www.rwjf.org/en/library/research/2012/06/the
-impact-of-hospital-consolidation.html [https://perma.cc/KN87-L6N4].
41
. Jan De Loecker et al., The Rise of Market Power and the Macroeconomic Implications, 135
Q.J. ECON. 561, 561 (2020).
42
. Id. at 562. The increase is not stable over the entire period. Margins increase most during
the 80s, 90s, and after 2008. Id. at 56263.
43
. Shapiro, supra note 11, at 732 (illustrating about a 50% increase in this figure since the
1980s).
44
. Id. at 73233.
2020] ANTICOMPETITIVE ENTRENCHMENT 1141
concentration is contributing to growing market power in some markets.
This is true at both the micro and macro levels.
At the micro level of antitrust relevant markets, one place to seek
evidence of a causal connection between changes in market concentration
and market power is through retrospective analysis of consummated
mergers. Since mergers do nothing but alter the structure of markets in a
way that increases concentration, changes in behavior before and after a
merger provide one way of measuring how recent increases in market
concentration have tended to affect market power.
45
Surveys of merger retrospectives provide clear evidence that the kind
of mergers consummated under modern merger policy have indeed
enhanced market power in somebut not allcases. For example, in a
detailed review of reliable retrospective studies covering some forty-two
mergers, John Kwoka reports post-merger price increases in thirty-four
mergers, with post-merger price decreases in the remaining eight.
46
For
the roughly 60% of products with price increases in these studies, Kwoka
estimates a nearly 9% average post-merger price increase.
47
Similar
results are reported by Orley Ashenfelter, Daniel Hosken, and Matthew
Weinberg, who surveyed forty-nine merger retrospectives to report post-
merger price increases in thirty-six of these studies, with price decreases
found in thirteen studies and with price stability found in thirteen studies
as well.
48
Trends in the national data support a similar conclusionthough,
again, the evidence is equivocal. While market concentration and market
power seem to have grown in rough proportion over recent decades, the
correlation between concentration and market power is imperfect.
49
Leila
Davis and Özgür Orhangazi summarize the data in terms similar to the
merger retrospective surveys: in some industries, an increase in
45
. This statement refers to horizontal mergers. The relationship between market concentration
and vertical mergers is more complicated. Cf. Jonathan B. Baker, Nancy L. Rose, Steven C. Salop &
Fiona Scott Morton, Five Principles for Vertical Merger Enforcement Policy, 33 ANTITRUST 12, 16
(2019) (noting, among other things, that coordinated effects from eliminating an upstream maverick
would not require the downstream market to be concentrated).
46
. JOHN KWOKA, MERGERS, MERGER CONTROL, AND REMEDIES: A RETROSPECTIVE ANALYSIS
OF U.S. POLICY 113 (2015). Important to understanding these figures, the antitrust agencies
challenged only 13 of the 34 mergers in which price increases were subsequently observed. Id.
47
. Id. at 94.
48
. Orley Ashenfelter et al., Did Robert Bork Understate the Competitive Impact of Mergers?
Evidence from Consummated Mergers, 57 J.L. & ECON. S67, S78S79 (2014). Studies covering
multiple mergers result in a sum that exceeds 49 because it is possible to find evidence of both price
increases and price decreases when assessing multiple transactions. Id. at S78 n.23.
49
. See, e.g., Ryan A. Decker, Big Is Beautiful: Debunking the Myth of Small Business, by Robert
D. Atkinson and Michael Lind, 54 BUS. ECON. 145, 146 (2019) (book review) (De Loecker and
Eechout find markups have risen most in sectors in which concentration has risen least . . . .”); Davis
& Orhangazi, supra note 36, at 1920 (noting that profit rates are not uniformly higher for higher
concentration industries).
1142 KANSAS LAW REVIEW [Vol. 68
concentration corresponds with an increase in market power, while in
other industries it does not.
50
But despite the existence of confounding
sources of market power and heterogeneity in the national data,
51
no recent
study has yet to explain rising U.S. market power in terms that exclude
market concentration as a potentially significant contributor.
52
National
data thus lend qualified support to the proposition that growing
concentration may be enhancing market power in at least some markets.
To summarize, available data are consistent with aspects of popular
concerns about concentration and market power problems. Both seller
concentration and market power appear to have risen in at least some
segments of the economy over the past thirty years. The rise in market
power is a complicated and inadequately understood phenomenon, but is
plausibly driven, in part, by rising market concentration. While these data
certainly leave room for alternative interpretations, the remainder of this
article takes seriously popular concerns, and assumes that market
concentration is today resulting in the persistent exercise of market power
in at least some relevant markets. The question is what antitrust can do
about it.
III. HOW OPPOSING ANTICOMPETITIVE ENTRENCHMENT COULD
ADDRESS MARKET CONCENTRATION PROBLEMS
As discussed earlier, many of the recent proposals for antitrust reform
involve political intervention or large-scale changes to the framework as
ways of addressing concentration and market power problems.
53
While
these are certainly feasible options, a more deliberate approach might start
by asking whether anything in the existing framework already provides a
basis for addressing these concerns. The following discussion identifies a
50
. Davis & Orhangazi, supra note 36, at 19; cf. Steven Berry et al., Do Increasing Markups
Matter? Lessons from Empirical Industrial Organization, 33 J. ECON. PERSP. 44, 4448 (2019)
(commenting on both conceptual and practical difficulties in attempts to assess concentration-markup
relationships across heterogeneous industries).
51
. See, e.g., David Autor et al., The Fall of the Labor Share and the Rise of Superstar Firms,
135 Q.J. ECON. 645, 64956, 673 (2020) (modeling how technological change could result in a
winner takes mostfeature that leads to both higher market concentration and higher profits); Chang-
Tai Hsieh & Esteban Rossi-Hansberg, The Industrial Revolution in Services 2–4 (Natl Bureau of
Econ. Research, Working Paper No. 25968, 2019) (attributing growing seller concentration to the
adoption of new fixed-cost technologies).
52
. See Matias Covarrubias et al., From Good to Bad Concentration? U.S. Industries Over the
Past 30 Years 2–6 (Natl Bureau of Econ. Research, Working Paper No. 25983, 2019) (reviewing
alternative interpretations of the available macro data in concluding that a sharp increase in profits in
the 2000s is best explained by competition barriers); see also Shapiro, supra note 11, at 733 (High
and persistent profits for any one firm are easy to explain, in theory, based on that firm being more
efficient than its rivals. But if high and persistent profits are widespread, any economist will naturally
ask why competitive forces are not eroding those supra-normal profits.).
53
. See supra notes 1217 and accompanying text.
2020] ANTICOMPETITIVE ENTRENCHMENT 1143
string of cases in the 1960s and 70s that envisioned merger enforcement
as a remedial tool for responding to excessive concentration and lax
competition. It then considers how this approach might be updated to
reflect modern economic analysis
54
and reintroduced to antitrust practice
to help combat market concentration and market power problems today.
A. Merger Enforcement as Remedy Rather Than Prevention
The preventative focus of modern merger enforcement demands
evidence that fairly specific anticompetitive injuries will result from a
merger or acquisition before remedies will be contemplated. This
expectation is apparent in commentary implying that merger analysis
should only act to prevent enhancements of market power.
55
It is similarly
apparent in demands for specific proof of how a merger will tend to
enhance market power.
56
It is apparent in the typical approach taken to
market definition in merger cases.
57
And it is apparent in expectations that
potential competition cases should be limited to only those circumstances
in which specific predictions of forgone competition can be articulated.
58
But merger enforcement has not always been so singularly focused on
prevention and the enhancement to market power. In the 1960s, a string
54
. Antitrust law exhibits remarkable flexibility in its ability to adapt to and incorporate changes
in economic thinking and interpretation. See Kimble v. Marvel Entmt, LLC, 135 S. Ct. 2401, 2412
13 (2015) (commenting that the Court has viewed stare decisis as having less-than-usual force in
cases involving the Sherman Actand has therefore felt relatively free to revise . . . legal analysis as
economic understanding evolves); see also D. Daniel Sokol, Rethinking the Efficiency of the Common
Law, 95 NOTRE DAME L. REV. 795, 82932 (2019) (discussing the efficiency-increasing evolution of
antitrust law under a singular focus on consumer welfare).
55
. See, e.g., Patrick Massey, Market Definition and Market Power in Competition Analysis:
Some Practical Issues, 31 ECON. & SOC. REV. 309, 323 (2000) (In assessing the competitive impact
of a merger the crucial issue is not whether one of the merging parties already enjoys a degree of
market power, but whether, as a result of the merger, the degree of market power would increase.);
Gregory J. Werden, Market Delineation and the Justice Departments Merger Guidelines, 1983 DUKE
L.J. 514, 525 (distinguishing merger review from analysis under Section 2 of the Sherman Act, stating
that the ultimate question [in merger analysis] is whether a merger would create or enhance market
power).
56
. See, e.g., 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, §§ 67 (identifying the
evidence of specific competitive effects that the antitrust agencies seek in review of mergers); Peter
C. Carstensen, The Philadelphia National Bank Presumption: Merger Analysis in an Unpredictable
World, 80 ANTITRUST L.J. 219, 238 (2015) (critiquing the demand for a specific, identifiable likely
effectthat became commonplace between the 1982 and 1992 Merger Guidelines).
57
. See, e.g., John B. Kirkwood, Market Power and Antitrust Enforcement, 98 B.U. L. REV. 1169,
1194 (2018) (commenting that the dominant approach to market definition in merger cases “asks
whether the defendant could increase price above [the prevailing] leveland that this, like a great
deal of antitrust enforcement,reflects an interest in identifying conduct that threatens to raise price
above the current level).
58
. See, e.g., Werden & Limarzi, supra note 23, at 13637 ([T]he reasonable probabilitytest
is not satisfied by proof that the acquiring firm, but for a proposed merger, someday might have entered
on its own . . . . [A]s a general rule, the firm would have to be far along a well-defined path toward
entry.).
1144 KANSAS LAW REVIEW [Vol. 68
of merger cases pursued a different objective: enjoining mergers not
because they posed a specific threat to current competitive conductions,
but as a way of fostering opportunities for future competition.
59
This
approach did not seek specific proof that a merger would make things
worse. It focused instead on whether obstruction of a merger might help
to remedy an already anticompetitive status quo.
The seminal statement of this alternative approach to merger
enforcement is provided by the Supreme Court in a well-known footnote
to the majority opinion in United States v. Philadelphia National Bank:
It is no answer that, among the three presently largest firms . . . there will
be no increase in concentration. If this argument were valid, then once
a market had become unduly concentrated, further concentration would
be legally privileged. On the contrary, if concentration is already great,
the importance of preventing even slight increases in concentration and
so preserving the possibility of eventual deconcentration is
correspondingly great.
60
This appears to contemplate that upon finding a relevant market
excessively concentrated, a court might adopt a strict enforcement posture
as a means of protecting existing opportunities for future competition.
While Philadelphia National Bank’s discussion of this idea was mainly
limited to this footnote, the Court returned to the strategy only a year later
in United States v. Aluminum Co. of America (Rome Cable).
61
The transaction at issue in Rome Cable was an acquisition, by the
infamous ALCOA company, of a small rival in the production of
aluminum cable.
62
In contrast to ALCOA, Rome had only about a 1.3%
market share at the time of its acquisition.
63
In finding this merger to
violate Section 7 of the Clayton Act, the Court followed the framework it
had telegraphed in Philadelphia National Bank.
64
It first emphasized the
poor competitive condition of the market at the time of acquisition, and
then directed attention to the potential for future competition created by
the independence of small companies like Rome:
65
It would seem that the situation in the aluminum industry may be
oligopolistic. As that condition develops, the greater is the likelihood
59
. See infra notes 6071.
60
. United States v. Phila. Natl Bank, 374 U.S. 321, 365 n.42 (1963) (emphasis added).
61
. 377 U.S. 271, 279 (1964).
62
. Id. at 272.
63
. Id. at 27274.
64
. Id. at 279 (The proposition on which the present case turns was stated in [Philadelphia
National Bank] . . . .(quoting Phila. Nat’l Bank, 374 U.S at 365 n.42)).
65
. Id. at 28081.
2020] ANTICOMPETITIVE ENTRENCHMENT 1145
that parallel policies of mutual advantage, not competition, will emerge.
That tendency may well be thwarted by the presence of small but
significant competitors.
66
A narrow parsing might read Rome’s role in preventing competitive
deterioration (not fostering future competition) as the Court’s key concern,
but the distinction is ultimately hollow. First, the prevention of further
competitive deterioration is itself a form of remedy in the context of a
downward trending status quo. Second, given its miniscule size, the only
way that Rome could either have disrupted or reversed a trend toward soft
oligopolistic competition lay in its potential for growth if preserved as an
independent competitor.
A noteworthy feature of the Court’s approach to merger enforcement
in these cases is that it did not involve the level of predictive specificity
expected in merger enforcement today. This is particularly clear in United
States v. Continental Can Co., a case in which the Court applied the same
approach in its review of a large metal can manufacturer’s acquisition of
a glass container manufacturer in a relevant market defined to include both
metal and glass containers.
67
Responding to evidence of limited
competition between these firms at the time of the merger, the Court
emphasized that anticompetitive effects of a merger embrace “not only []
the static competitive situation but also the dynamic long-run potential” of
the merger to foreclose future competition.
68
Yet the majority made little
effort to prove or even predict what exactly this future competition would
entail.
69
The opinion rested instead on the general thesis that competition
was inevitableperhaps especially so in an underperforming marketif
independent competitors were forced to square off against each other over
a long enough horizon.
70
Finally, another noteworthy feature of this approach to merger
enforcement is its pursuit of remedies for current competitive problems as
the justification for intervention. This remedial focus is strongly suggested
in the cases discussed above, especially Philadelphia National Bank and
its interest in using merger enforcement to bolster “the possibility of
eventual deconcentration.”
71
It is explicit in the Second Circuit opinion in
66
. Id. at 280.
67
. 378 U.S. 441, 45762 (1964). Whether this case would be better analyzed as a potential
competition fact pattern is irrelevant for present purposes. See Werden & Limarzi, supra note 23, at
111 (denying any helpful distinction between potential competition cases and standard forward-
looking merger analysis).
68
. Contl Can, 378 U.S. at 46466.
69
. Id. at 465 (noting, but not specifically predicting, various possible ways that the elimination
of current or potential competition between the merging firms might foreclose future competition).
70
. See id.
71
. See United States v. Phila. Natl Bank, 374 U.S. 321, 365 n.42 (1963).
1146 KANSAS LAW REVIEW [Vol. 68
Stanley Works v. FTC, upholding injunction of the acquisition of a small
cabinet maker (with about a 1% market share) by the industry leader in an
otherwise oligopolistic market.
72
Adopting the reasoning of earlier
Supreme Court cases, the Second Circuit followed the now familiar
pattern: focusing first on poor competitive conditions, and then on the
potential for future competition as its justification for intervention.
73
It
went further, however, in specifically identifying the remedial project
behind this approach:
Section 7’s incipiency standard, which “requires not merely an appraisal
of the immediate impact of the merger upon competition, but a prediction
of its impact upon competitive conditions in the future”, provides
preventive as well as remedial therapy for an ailing industry; surely its
salutary medicines need not be withheld until the diagnosis reads
“terminal.”
74
The implication of this and earlier Supreme Court cases is that
antitrust may prohibit mergers and acquisitions not only for the now-
standard purpose of preventing an enhancement of market power. Merger
enforcement may also function as “remedial therapy” for addressing
existing problems in a relevant market.
75
Of course, the antitrust policy of the 1960s and 70s differed in
fundamental ways from the modern framework. Many opinions of this era
were concerned with concentration qua concentration, whereas today
market concentration is relevant only as one of several potential
determinants of market power.
76
These opinions also labored under
definitions of dominance and oligopoly that would not begin to satisfy the
modern meaning of these terms.
77
But the fundamental approach to
merger enforcement envisioned in the cases discussed in this section
transcends technical implementation details. The next section considers
how the approach might be updated and reintroduced to the modern
framework.
72
. 469 F.2d 498, 499501 (2d Cir. 1972).
73
. Id. at 508 ([T]hough a market may be concentrated, forces may operate so as to maintain
some level of competition and thus preserve the possibility of eventual deconcentration. That is why
the continued independence of companies with relatively small market shares is so crucial to the health
and vitality of a market threatening to become oligopolistic.).
74
. Id. at 505 (emphasis added) (quoting Phila. Natl Bank, 374 U.S. at 362).
75
. See id.
76
. Cf. Cristofer Esty Lord, Entrenchment Challenges to Conglomerate Mergers, 60 WASH. U.
L.Q. 537, 53738 (1982) (A review of the legislative history of the Celler-Kefauver Act reveals that
Congress was deeply concerned about increased market concentration.); Hovenkamp, supra note 14,
at 62426 (discussing the limited relevance of industrial concentrationin modern antitrust analysis).
77
. Cf. Lord, supra note 76, at 543–50 (describing concerns with conglomerate entrenchment
in largely protectionist terms).
2020] ANTICOMPETITIVE ENTRENCHMENT 1147
B. Reintroducing the Theory of Anticompetitive Entrenchment
Though it may not have seemed so at the time they were penned, the
previously discussed opinions introduced antitrust to a distinct approach
to merger enforcement. The immediate focus of this approach was on
forestalling the entrenchment of competitive problems, but the deeper
objective was remedial in nature. Where competitive problems were
already apparent at the time of a merger or acquisition, a strict and
restrictive enforcement posture was seen as a way of preserving all
possible opportunities for competitive friction and independent interaction
in service of the more fundamental objective of trying to remedy existing
competitive problems in this market.
While hints and echoes of this approach still linger in modern merger
policy,
78
full-throated concern with the entrenchment of market power is
simply missing from the current framework. Neglect of the theory has
been so complete that the cases advancing the entrenchment approach
have become dated and exhibit linguistic and logical gulfs when compared
with modern merger cases. The disconnects from modern practice are
superficial, though, and can be resolved with only modest tweaking. As a
bridge between the past and present, I suggest the following working
statement of a modern entrenchment theory of merger enforcement:
Where a relevant market is unduly concentrated at the time of a merger,
and where this concentrated market structure appears to be facilitating
the exercise of market power, a merger of competitors may be enjoined
even in the absence of specific proof that it would result in a price
increase, output decrease, or the like. The purpose of this injunction is
not to preserve the outcomes of current competition, but instead to
protect the opportunity for existing competitive frictions eventually to
78
. The introduction to the current Merger Guidelines declares the overarching principle that
mergers should not be permitted to create, enhance, or entrench market power or to facilitate its
exercise.2010 HORIZONTAL MERGER GUIDELINES, supra note 23, § 1 (emphasis added). While the
Guidelines make few explicit references to entrenchment after this introduction, concerns about
preserving opportunities for future competition appear throughout the document. E.g., id. § 2.1.4
(describing potential unilateral injury where the merging firms . . . likely will become absent the
merger, substantial head-to-head competitors); id. § 2.1.5 (noting potential coordinated injury where
one of the merging firms has a strong incumbency position and the other merging firm threatens to
disrupt market conditions . . . their merger can involve the loss of actual or potential competition);
id. § 4.1.2 (substituting anticipated future prices as the benchmark for the [HMT] testwhere prices
are likely to change absent the merger, e.g., because of innovation or entry); id. § 6.4 (noting the
possible elimination of innovation competitionwhere one of the merging firms would likely
develop new products in the future that would capture substantial revenues from the other merging
firm”); accord Am. Needle, Inc. v. Natl Football League, 560 U.S. 183, 195 (2010) (emphasizing, in
the context of a Section 1 case, the importance of separate economic actors pursuing separate
economic interests,” because agreements limiting the independence of such competitors “‘deprive[]
the marketplace of independent centers of desionmaking’ . . . and thus of actual or potential
competition [between these firms]” (quoting Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752,
769 (1984))).
1148 KANSAS LAW REVIEW [Vol. 68
improve outcomes in this market.
79
Importantly, a modern implementation of this entrenchment approach
would be subject to other developments in merger policy, including the
evolution of a defense recognizing certain merger-specific efficiencies and
the modern approach to analyzing impending failure and exiting-asset
considerations.
80
For addressing concerns about current market concentration and
market power problems, this entrenchment theory offers an appealing
alternative to more heavy-handed proposals like active deconcentration or
low-level regulation of businesses. For example, the entrenchment
approach requires far less government intervention in the function of
markets.
81
It continues the settled practice of preferring organic
competition over regulation, whenever the former can possibly act to
protect consumer interests. And it has the administrability advantage of
nesting within the already established framework of modern antitrust
analysis.
82
But reintegrating the entrenchment theory into merger
enforcement would still be a change for modern merger policy, and like
most changes, there would be costs to bear and challenges to overcome.
Among the costs, reintroducing the entrenchment approach to merger
enforcement would compel litigants and courts to grapple with some
substantial, and even novel, proof problems. First, and most obviously,
this approach puts heavy weight on the proper definition of relevant
markets and the accurate identification of market structure within a
relevant market.
83
Market definition and proof of undue concentration in
a relevant market are already fraught aspects of merger litigation,
84
and
79
. Competitive frictionscontemplate all the ways that dynamic competition may eventually
destabilize and erode existing market power. Examples include exogenous cost, demand, and
technology shocks as transformed by imperfect information about market conditions and the behavior
and strategies of rival firms into changes in those behaviors and strategies.
80
. See 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, §§ 10–11 (describing the
Agenciesconsideration of efficiencies and exiting-assets defenses); see also id. §§ 5.1, 5.2, 9
(providing a more nuanced treatment of entry than existed in earlier entrenchment cases).
81
. Cf. STEPHEN MARTIN, INDUSTRIAL ORGANIZATION IN CONTEXT 697 (2010) (noting that one
of the few obvious remedies for tacit collusion would be regulation, but observing that regulation is
subject to failure, as are marketsand commenting that detailed regulation is not an option that
economists have tended to view as a happy one).
82
. See supra notes 16, 17, 22, 81 (considering administrability concerns with alternative
approaches to antitrust intervention in this area).
83
. See generally Glasner & Sullivan, supra note 25 (discussing the fairly complicated and
technical process of proper antitrust market definition); Jonathan Baker, Market Definition: An
Analytical Overview 74 ANTITRUST L.J. 129, 129 (2007) (same); Gregory J. Werden, The 1982 Merger
Guidelines and the Ascent of the Hypothetical Monopolist Paradigm, 71 ANTITRUST L.J. 253, 25354
(2003) (same); Steven C. Salop, The First Principles Approach to Antitrust, Kodak, and Antitrust at
the Millennium, 68 ANTITRUST L.J. 187, 18990 (2000) (same).
84
. See, e.g., Baker, supra note 6, at 129 (Market definition is often the most critical step in
2020] ANTICOMPETITIVE ENTRENCHMENT 1149
these complicated fact questions surely would be at least as strenuously
contested in any case brought on entrenchment grounds.
Second, the theory’s focus on problems with existing competition
necessitates an evaluation of current market power that is rarely needed in
modern merger analysis.
85
The proof problems inherent in measuring
market power are not insuperablein appropriate circumstances, market
power may be indicated by price-cost margin data, patterns of behavior,
or other reasonable evidencebut neither are they insignificant.
86
Moreover, even with a proper measure of market power, there remains a
question of the appropriate baseline. In short, how much market power is
too much? Antitrust has largely avoided this question to date by focusing
instead on opposing enhancements in market power, whatever the baseline
might be.
87
Here, antitrust would need to abandon this crutch, at least to
the extent of identifying what types of market power would be appropriate
targets for the remedial strategy of this approach. In other respects,
however, reintegration of the entrenchment approach into merger
enforcement would be fairly straightforward. Several seemingly serious
hurdles turn out to be little challenge at all.
First, while it might seem like this approach could fail to satisfy the
substantial lessening of competition standard of the Clayton Act,
88
there is
case law and commentary to the contrary. It must be recalled that the
evaluating market power and determining whether business conduct has or likely will have
anticompetitive effects.).
85
. See Massey, supra note 55, at 323 (expressing the now prevailing view that merger
enforcement is primarily concerned with enhancements of market power); Werden, supra note 55, at
52526 (similar); 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, §§ 67 (similar); see also
Carstensen, supra note 56, at 238 (describing, without adopting, this view).
86
. See generally Lawrence J. White, Market Power and Market Definition in Monopolization
Cases: A Paradigm Is Missing, in 2 ABA SECTION OF ANTITRUST LAW: ISSUES IN COMPETITION LAW
AND POLICY 913 (Wayne D. Collins ed., 2008) (discussing closely related challenges in the context of
establishing monopoly power under Section 2 of the Sherman Act); 2B PHILIP E. AREEDA, HERBERT
HOVENKAMP & JOHN L. SOLOW, ANTITRUST LAW ch. 5B, at 135234 (4th ed. 2014) (considering
various bases, other than market definition and market structure analysis, on which market power
might be inferred).
87
. See Kirkwood, supra note 57, at 1194 (noting that the common focus on the ability to increase
price above the prevailing price does not ask whether the prevailing level is competitive;it [only]
asks whether the defendant could increase price above that level). The inquiry is different in some
conduct cases under Section 2, which may provide some guidance for market power analysis under an
entrenchment theory of merger enforcement. See, e.g., id. at 11971206 (discussing price increases
relative to a but forprice); White, supra note 86, at 914 (discussing the need for what is essentially
a market power paradigm in monopolization analysis). But see Consolidated Version of the Treaty on
the Functioning of the European Union art. 102, 2012 O.J. (C 326) 47 (making it a competition law
violation for a firm in a dominant positionto abuse its position by setting unfair purchase or selling
prices or other unfair trading conditions).
88
. See AREEDA & HOVENKAMP, supra note 21, ¶ 1124, at 62 (suggesting that a merger may not
be said to reduce competition if it only eliminates a future opportunity to increase it); James A. Rahl,
Applicability of the Clayton Act to Potential Competition, 12 SEC. ANTITRUST L. 128, 143 (1958)
(asserting that the Clayton Act does not prescribe a program for increasing competition. Its
prohibition runs to conduct which actually or probably lessens competition.).
1150 KANSAS LAW REVIEW [Vol. 68
Supreme Court itself suggested this approach, using it to enjoin mergers
under the Clayton Act in cases that have never been overturned.
89
And it
is important to remember thatjust like the entrenchment approachall
modern merger analysis is ultimately forward looking.
90
The major
difference is in the amount of specificity that each approach demands of
predictions about future competition. Where competitive conditions are
already poor, the entrenchment approach requires less specificity in the
prediction of competitive gains than would be expected under the now-
standard preventative approach to merger enforcement.
Second, and on the topic of relaxed specificity requirements, another
concern with the entrenchment approach might be that it could result in
mergers being enjoined on the basis of “speculation” about future
competition.
91
More precisely, the reduction in predictive specificity
could result in more false-positive errors, where mergers are blocked
without ultimately contributing to the improved competition for which
they were enjoined.
92
There is logic to this concern, but it must be placed
in context. Because the entrenchment approach is only implicated in
markets in which problematic market power is already being exercised,
the relevant context will often be one with substantial costs for false-
negative errors.
93
Failures to intervene in addressing the exercise of
market power in this type of market are likely to result in the continued
(and presumably durable) exercise of that power into the future. As a
result, an optimal balance of errorsin this settingmay actually involve
more false positives than one would expect of now typical merger
enforcement.
94
This is especially true where the remedy in question is
89
. See supra notes 6069 and accompanying text; Phillip Areeda, Market Definition and
Horizontal Restraints, 52 ANTITRUST L.J. 553, 564 (1983) (Merger precedents have been concerned
not only with combinations creating new power but also with those reinforcing present power. One
need not endorse all the cases making or misusing that point to accept the proposition that Clayton Act
Section 7s prophylactic mandate is violated by a merger which reinforces pre-existing monopoly or
oligopoly pricing.).
90
. See Werden & Limarzi, supra note 23, at 111.
91
. Cf. United States v. Marine Bancorp., 418 U.S. 602, 62223 (1974) (rejecting a proposed
geographic market as simply too speculative on this recordwhere there was no persuasive showing
that the effect of the merger [would be felt throughout this market]and where the Court was asked
to assume, on the basis of essentially no evidencethat this effect would occur); Brown Shoe Co. v.
United States, 370 U.S. 294, 323 (1962) (distinguishing mergers with a probable anticompetitive
effectfrom those with only ephemeral possibilitiesof harm).
92
. Cf. Louis Kaplow, Burden of Proof, 121 YALE L.J. 738, 75662 (2012) (observing that less
exacting burdens of persuasion will generally result in more false positives); Brooke Grp. Ltd. v.
Brown & Williamson Tobacco Corp., 509 U.S. 209, 223 (1993) (expressing concern that certain strict
antitrust rules may create intolerable risks of chilling legitimate [behavior]).
93
. Cf. Lawrence M. Frankel, The Flawed Institutional Design of U.S. Merger Review: Stacking
the Deck Against Enforcement, 2008 UTAH L. REV. 159, 19299 (discussing the relative potential
costs of false positives and false negatives in merger enforcement).
94
. See generally Steven C. Salop, The Evolution and Vitality of Merger Presumptions: A
2020] ANTICOMPETITIVE ENTRENCHMENT 1151
merely injunction of a prospective merger, and not a more drastic
intervention for which false-positive costs could be greater.
Third, and finally, while it might be objected that what I call the
general entrenchment theory is a revisionist account of now dated cases,
that objection falls flat in the antitrust context.
95
From concerted action,
to monopolization, to merger cases, nearly all of modern antitrust evolved
from economic refinements and reinterpretations of earlier, less
economically sophisticated ideas and opinions.
96
In this light, the
entrenchment theory is simply one component of old antitrust that was
passed over in the broader update. The following parts of this article
illustrate the gains that could await its revitalization today.
IV. APPLICATION: TACITLY COLLUDING OLIGOPOLY
In markets with few sellers and unattractive opportunities for entry, it
is well known that soft competition and conditions closer to cooperation
than competition can take hold.
97
These uncompetitive patterns of
interaction can arise without any express agreements between
competitors,
98
though the results may be the same as explicit collusion,
99
if not worse.
100
As a prototypical example of the exercise of market power
Decision-Theoretic Approach, 80 ANTITRUST L.J. 269, 29698 (2015) (recommending a decision-
theoretic approach to merger enforcement which considers the costs of decision errors in rule
formulation); Frankel, supra note 93, at 15960 (critiquing current U.S. merger review as tending to
produce too many false negatives).
95
. Cf. Hosp. Corp. of Am. v. FTC, 807 F.2d 1381, 1385 (7th Cir. 1986) (Posner, J.) (chiding the
FTC for studiously avoiding reliance on any of the Supreme Courts section 7 decisions from the
1960s except United States v. Philadelphia Natl Bank).
96
. See generally William E. Kovacic & Carl Shapiro, Antitrust Policy: A Century of Economic
and Legal Thinking, 14 J. ECON. PERSP. 43 (2000) (chronicling the convergence of legal and economic
thinking over the history of the antitrust statutes); see also Kimble v. Marvel Entmt, LLC, 135 S. Ct.
2401, 241213 (2015) (noting the special plasticity of antitrust law with respect to changes in
economic thinking).
97
. BAKER, supra note 6, at 3 (Even more troubling, cartel prosecutions by the Justice
Department are probably only the tip of a large market-power iceberg arising from coordinated
conduct among oligopolists . . . . Thats why it is reasonable to infer from the cartel statistics that the
exercise of market power arising from anticompetitive coordinated conduct is common in oligopoly
markets.).
98
. See RICHARD A. POSNER, ANTITRUST LAW 52 (2d. ed. 2001) ([I]n some circumstances,
competing sellers might be able to coordinate their pricing without conspiring in the usual sense of the
termthat is, without any overt or detectable acts of communication.). But see Jonathan B. Baker,
Two Sherman Act Section 1 Dilemmas: Parallel Pricing, the Oligopoly Problem, and Contemporary
Economic Theory, 38 ANTITRUST BULL. 143, 145 (1993) (suggesting that agreement could be inferred
from the deliberative process of tacit collusion).
99
. MARTIN, supra note 81, at 697 ([I]f the number of firms is small, independent action can
lead to results that closely approximate those of collusion.).
100
. As discussed in Section IV.A, modern antitrust offers few impediments to the exercise of
market power in this arrangement. This is problematic, given the apparent durability of market power
when patterns of coordination take hold. See, e.g., Margaret C. Levenstein & Valerie Y. Suslow,
1152 KANSAS LAW REVIEW [Vol. 68
in highly concentrated markets, tacit collusion among oligopolists is a
prime target for an entrenchment theory of merger control.
A. Insufficiency of Existing Antitrust Concepts
The value of the entrenchment approach is greatest where other
elements of the antitrust framework are unable to address an existing
market power and market concentration problem. In this respect, one of
the most frustrating blind spots of modern antitrust is its inability to
address tacit collusion among oligopolists.
101
While things like express
price fixing are clearly illegal under Section 1 of the Sherman Act,
102
equivalent conduct reached by experience and inference, but without
express agreement, appears all but untouchable today.
The difficulty of reaching the conduct of tacit collusion under Section
1 is well known. Ever since the Supreme Court decided Theater
Enterprises, Inc. v. Paramount Film Distributing Corp. in 1954,
103
there
has been no serious argument that merely parallel conduct could constitute
an antitrust violation.
104
Liability under Section 1 requires an
agreement.
105
There are quite sensible reasons for this rule, but it means
that if competitors can manage to coordinate their conduct without
forming any actual “agreement” to do so, they can achieve all the benefits
of collusion without any risk of liability for doing so.
106
This is not a
theoretical or academic point. Recent cases offer stark illustrations of both
Breaking Up Is Hard to Do: Determinants of Cartel Duration, 54 J.L. & ECON. 455, 463 (2011)
(discussing the determinants of cartel stability in relation to data in which the average duration of
cartels was roughly eight years, with a median duration of seven years); see generally Barbara
Alexander, The Impact of the National Industrial Recovery Act on Cartel Formation and Maintenance
Costs, 76 REV. ECON. STAT. 245 (1994) (describing evidence that, once cartels are formed, they may
remain durable and functional for an extended period, even if subsequent conditions are hostile to
coordination).
101
. MARTIN, supra note 81, at 697 (“In both the U.S. and the EU, genuinely independent business
decisions are not condemned by laws that ban collusion, even if the independent decisions lead to
market outcomes that are indistinguishable from those of collusion. This is the heart of the problem
that oligopoly presents for the enforcement of competition law . . . .”).
102
. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 (1940) (Under the Sherman
Act a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging,
or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.).
103
. 346 U.S. 537 (1954).
104
. MARTIN, supra note 81, at 692, 69596 (noting the demise of the doctrine of conscious
parallelism with Theater Enterprises); Kovacic & Shapiro, supra note 96, at 50 (After toying with
the possibility of treating oligopolistic interdependence as a form of agreement, the Supreme Court
[ruled in Theatre Enterprises] that proof of conscious parallelism,without more, could not . . .
establish an antitrust violation.).
105
. Hovenkamp, supra note 24, at 52 ([C]ollusion-like behavior can be condemned only if the
conduct satisfies the agreementrequirement of section 1 of the Sherman Act. Many instances of
acknowledged conscious parallelism do not.).
106
. Baker, supra note 6, at 5 ([B]usinesses are taught to exploit gaps in antitrust rules to engage
in coordinated conduct without running afoul of those rules.).
2020] ANTICOMPETITIVE ENTRENCHMENT 1153
the existence of tacit collusion, and the inability of antitrust to do anything
about it.
107
Even attempts to reach tacit collusion on Section 1 grounds by
inferring an implied agreement to collude have proven largely
unsuccessful at addressing this anticompetitive conduct. Perversely,
though with some logic, courts tend to view the tightness of an oligopoly
as a factor that actually militates against the inference of an agreement.
108
In a concentrated market in which all firms predict an unwinding of super
competitive profits if they were to engage in aggressive competition, why
would any agreement be needed for each firm individually to conclude that
soft competition is the best strategy?
Although merger enforcement has long been thought especially
important as a way of preventing this type of market structure from taking
hold,
109
there seems to be less recognition that modern merger
enforcement policy is actually poorly equipped to deal with situations in
which tight oligopolistic coordination is already underway. A detailed
defense of this claim requires more space than I can devote here, but two
brief observations will illustrate the point.
First, the focus of modern merger enforcement on enhancements of
market power typically leads market definition to use the current price as
the baseline against which price increases are compared when defining
107
. E.g., Valspar Corp. v. E.I. Du Pont De Nemours & Co., 873 F.3d 185, 19196 (3d Cir. 2017)
(stating the rule that conscious parallelism is beyond the reach of antitrust lawsand concluding that
evidence of 31 parallel price increase announcements failed to prove more than the mere
interdependenceof competitors); In re Text Messaging Antitrust Litig., 782 F.3d 867, 87177 (7th
Cir. 2015) (Posner, J.) (affirming summary judgment for defendants on a record consistent with tacit
as well as express collusion,in part because the fewer the firms, the easier it is for them to engage
in follow the leaderpricing . . . which means coordinating their pricing without an actual agreement
to do so.); Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1291 (11th Cir. 2003) (affirming
a district court holding that [cigarette] manufacturerspricing behavior evidenced nothing more than
conscious parallelism, a perfectly legal phenomenon commonly associated with oligopolistic
industrieswhen appellants could not produce sufficient evidence tending to exclude the possibility
of independent action).
108
. Hovenkamp, supra note 24, at 53 (Numerous Sherman Act section 1 decisions involving
tight oligopoly industries have rejected price fixing allegations by concluding that conspiracies are
more difficult to prove in such markets than in those that are more competitively structured.). But
see Christopher R. Leslie, The Probative Synergy of Plus Factors in Price-Fixing Litigation, 115 NW.
U. L. REV. (forthcoming 2020) (sharply criticizing the reasoning of opinions that have failed to infer
agreements to collude among the members of tight oligopolies).
109
. See Shapiro, supra note 11, at 738 (Merger enforcement is especially important since a wide
range of interdependent conduct by oligopolists, i.e., conduct whereby the oligopolists refrain from
vigorous competition, is not considered to be illegal if it does not involve an agreement among those
oligopolists.); MARTIN, supra note 81, at 697 (A clear implication of the oligopoly problem is that
if there are practical difficulties in influencing business conduct in oligopoly markets, competition
authorities should take great care in administering policy toward market structure. A proposed merger
that would lead to market structures conducive to tacit collusion should be vetted, keeping in mind the
oligopoly problem that might arise in the post-merger market.).
1154 KANSAS LAW REVIEW [Vol. 68
relevant markets in merger cases.
110
Where the concern is that a merger
will create new market power, this approach makes perfect sense. But
where an oligopoly is already tacitly colluding, defining markets relative
to the collusive prevailing price tends to produce broad relevant markets
in which competition looks stronger and less conducive to the exercise of
market power than it actually is.
111
Second, the now standard approach to proving coordinated effects in
merger cases asks how a merger will make a market more vulnerable to
coordination than it would be without the merger,
112
expressly seeking
evidence other than the structural effect of the merger itself.
113
The
strongest argument contemplated by the current Merger Guidelines is a
merger involving the acquisition of a maverick firm that has previously
rebuffed the efforts of other competitors to collude.
114
But where tight
oligopolists are already tacitly colluding, evidence that a merger would
lead to any specific enhancement in collusion may be weak to nonexistent.
The only remarkable thing about this statement is that it might be
interpreted as an argument against antitrust intervention. The intuitive
problem with such a merger is not that it will enhance market power. The
problem is that it will entrench market power.
110
. See supra note 87 and accompanying text (noting this regularity). While the Merger
Guidelines accept the use of different baseline prices in certain circumstances, the conditions needed
to justify deviation from the prevailing price norm are restrictive. See Glasner & Sullivan, supra note
25, § II.B.2.
111
. In the context of monopolization cases, this problematic approach to market definition is
commonly called the Cellophane fallacy. See POSNER, supra note 98, at 15051 (providing a textbook
summary of the Cellophane fallacy).
112
. 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, § 7.1 (focusing on whether a
merger is likely to change the manner in which market participants interact, inducing substantially
more coordinated interaction”); id. (seeking a credible basis on which to conclude that the merger
may enhance that vulnerability); see also Herbert Hovenkamp, Harm to Competition Under the 2010
Horizontal Merger Guidelines, 39 REV. INDUS. ORGAN. 3, 13 (2011) ([W]hat happened during the
1990s and a little after is that the other factorsportions of the Guidelines ended up doing much more
of the work, and Guidelinesstructural presumptions became much less important.); Carstensen,
supra note 56, at 242 (Such merger-specific prediction discourages challenge to even significant
structural change because of the difficulty in provingthat some specific effect is likely to happen
within some relatively short period of time.).
113
. Jonathan B. Baker, Mavericks, Mergers, and Exclusion: Proving Coordinated Competitive
Effects Under the Antitrust Laws, 77 N.Y.U. L. REV. 135, 139 (2002) (referring to structural
determinants of coordination as the dinner party storyand critiquing this evidence of coordination
on the basis that the dinner party story does not answer the question of why the particular merger
under review is likely to help the industry solve its coordination problems).
114
. See 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, §§ 2.1.5, 7.1; see also Baker,
supra note 6, at 17779 (using the concept of the maverick to distinguish anticompetitive and
procompetitive mergers).
2020] ANTICOMPETITIVE ENTRENCHMENT 1155
B. Promise of an Entrenchment Theory
It is straightforward to apply the entrenchment theory of merger
enforcement to the fact pattern of a tacitly colluding oligopoly. Almost by
definition, such an oligopoly is going to satisfy the first requirement of the
entrenchment approach: an already concentrated relevant market. In fact,
as I have argued elsewhere, proper market definitionwhen conducted in
relation to entrenchment theoriesshould take some version of the
competitive price as its baseline.
115
This suggests that relevant markets in
entrenchment cases may often be narrower than they would be under the
now typical preventative approach to merger enforcement. That is, the
previously noted and perverse expansion of relevant markets when firms
are already tacitly colluding should not arise when a merger is being
challenged on entrenchment grounds.
Proof of the ongoing exercise of market power also appears
straightforward in the context of ongoing tacit collusion. The crux of
recent cases on the topic has not been doubt about the exercise of market
powerwhich is evinced by rising profits, multiple price increases,
pricing announcements, and the likebut doubt about the existence of an
“agreement” to do so.
116
This is no obstacle for the entrenchment approach
to merger enforcement, as the Clayton Act does not require any agreement
to intervene.
117
The entrenchment approach is satisfied by the ability to
exercise market power in such a market structure.
Finally, absent special circumstances, concentration of the relevant
market will typically be a contributor to the exercise of market power via
tacit collusion. The more tightly concentrated the market is, the more
likely a court is to infer that parallel conduct is being fostered by
interdependence and not agreement. Indeed, it is this very logic upon
which tacitly colluding oligopolists escape Section 1 liability.
118
Having
the benefit of that structural inference in one respect, the members of a
tight oligopoly cannot credibly deny it in another respect.
This not only completes the requirements of the entrenchment theory
of harm, but also justifies an injunctive remedy. The entrenchment
approach to merger enforcement prescribes aggressive injunction of
mergers in relevant markets in which tacit collusion already appears to be
115
. See Glasner & Sullivan, supra note 25, § II.B.1 (discussing the need to calibrate the baseline
price in the hypothetical monopolist test in relation to different theories of harm).
116
. See Valspar Corp. v. E.I. Du Pont De Nemours & Co., 873 F.3d 185, 19196 (3d Cir. 2017);
In re Text Messaging Antitrust Litig., 782 F.3d 867, 87177 (7th Cir. 2015); Williamson Oil Co. v.
Philip Morris USA, 346 F.3d 1287, 1291 (11th Cir. 2003).
117
. See, e.g., Hovenkamp, supra note 24, at 47 (Section 7 has no agreement requirement, such
as that which limits enforcement of section 1 of the Sherman Act.).
118
. Valspar Corp., 873 F.3d at 19196; In re Text Messaging Antitrust Litig., 782 F.3d at 871
77; Williamson Oil Co., 346 F.3d at 1291; Hovenkamp, supra note 24, at 53.
1156 KANSAS LAW REVIEW [Vol. 68
ongoing. The point of injunction is not, to repeat, the now-standard
objective of trying to prevent an incremental price increase as a result of
the merger. The point is to preserve all opportunities for competitive
frictions eventually to cause breakdowns in coordination,
119
hopefully
securing more competitive future outcomes than consumers enjoy today.
Of course, even if the entrenchment theory is justified in the extreme
case of clear and ongoing tacit collusion, the approach could still be
objected to as a potentially very difficult inquiry in borderline cases where
market structure and market power are both seriously in dispute. The only
defense to this critique is that the alternativein which tacit collusion is
entirely beyond the reach of antitrustis costly as well. The same
critique, admission, and response applies to the equally valid observation
that this approach to merger enforcement would require an assessment of
how much of an exercise of market power is enough to justify
interventiona point discussed earlier in this article.
120
Other critiques are less persuasive.
It might be objected, for example, that the obstruction of a merger on
entrenchment grounds could result in firms failing to achieve scale or other
productive efficiencies. The scale argument starts from an unsure footing,
since the entrenchment theory only applies to already concentrated
markets. But giving it the benefit of the doubt for sake of argument, this
and other efficiencies can be raised as part of an efficiencies defense in the
entrenchment context.
121
True, the comparison of short-term efficiencies
to long-term potential benefits of incremental competitive friction could
be a challenging exercise, but the assessment of merger efficiencies is
hardly much cleaner today.
122
A similar objection could be raised that a heavy-handed application of
the entrenchment approach could prevent a firm from efficiently exiting
from a concentrated but actually oversaturated market, essentially
requiring the firm to exit through liquidation instead of acquisition.
123
119
. Cf. Christopher R. Leslie, Trust, Distrust, and Antitrust, 82 TEX. L. REV. 515, 56495 (2004)
(discussing competitive tensions and the modulation of trust among cartel participants); ALFRED D.
CHANDLER, JR., THE VISIBLE HAND: THE MANAGERIAL REVOLUTION IN AMERICAN BUSINESS 316
20 (1977) (detailing the early formation of trade associations to manage collusion among member
firms, and the tendency of these cartels to adopt the forms of trust or merger as a way of mitigating
otherwise frequent problems of destabilizing cheating and secret defection).
120
. See supra notes 8587 and accompanying text (discussing this complication and positioning
it in the context of other antitrust actions).
121
. See 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, § 10.
122
. See Sean P. Sullivan, Lumps in Antitrust Law, U. CHI. L. REV. ONLINE (Mar. 30, 2020),
https://lawreviewblog.uchicago.edu/2020/03/30/lumps-in-antitrust-law-by-sean-p-sullivan/ [https://
perma.cc/3VZ4-3PY4] (discussing the difficulty of assessing merger efficiencies under current
antitrust norms).
123
. Models of oligopolistic competition rarely allow for an infinite number of firms to participate
2020] ANTICOMPETITIVE ENTRENCHMENT 1157
This, too, could be raised and considered as a straightforward application
of the failing firm defense.
124
Finally, it might be objected that this entrenchment approach requires
the government to reach into the business conduct of oligopolists, coming
close to the bureaucratic regulation of businesses that antitrust policy has
historically eschewed. There is some truth to this, but it must be placed in
context. As already discussed, the typical preventative approach to
coordination cases faces substantial hurdles where tacit collusion has
already taken hold.
125
And in terms of conduct challenges, the chief
argument raised in response to suggestions that tacit collusion should be
reached by Section 1 is that courts cannot practically regulate business
conduct or force a business to compete.
126
This being the case, the
preservation of existing competition, however imperfect, may be the only
plausible remedy for the problem of tacit collusion where it occurs.
127
To
retreat from the entrenchment theory as too interventionist is essentially to
concede the field.
128
V. APPLICATION: DOMINANT FIRM IN A PROTECTED POSITION
Another example of the potentially durable exercise of market power
in a concentrated market involves a dominant firm protected by scale
effects, network effects, or similar barriers to entry. The emergence of
such a firm need not result from any exercise of exclusionary or
anticompetitive conduct. Market concentration and the rise of dominant
firms may, for example, be all but inevitable in the case of natural
in the market and still earn non-negative profits. See, e.g., Carl Shapiro, Theories of Oligopoly
Behavior, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 239, 336 (R. Schmalensee & R.D. Willig
eds., 1989) (noting that firms in Cournot equilibrium are not generally guaranteed non-negative profits
if the number of market participants is sufficiently large); Avner Shaked & John Sutton, Natural
Oligopolies, 51 ECONOMETRICA 1469, 146970 (1983) (describing a related property in quality-
differentiated competition).
124
. See 2010 HORIZONTAL MERGER GUIDELINES, supra note 23, § 11.
125
. See supra notes 110114 and accompanying text.
126
. E.g., Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 484 (1st Cir. 1988) (Breyer,
J.) ([I]t is close to impossible to devise a judicially enforceable remedy for interdependentpricing.
How does one order a firm to set its prices without regard to the likely reactions of its competitors?);
In re Text Messaging Antitrust Litig., 782 F.3d 867, 874 (7th Cir. 2015) (Posner, J.) (A seller must
decide on a price; and if tacit collusion is forbidden, how does a seller in [a tight, oligopolistic market]
decide what price to charge? If the seller charges the profit-maximizing price (and its competitors
do so as well), and tacit collusion is illegal, it is in trouble. But how is it to avoid getting into
trouble?).
127
. See Hovenkamp, supra note 24, at 47 (The appropriate use of incipiency tests is to prevent
certain bad outcomes early when antitrust rules make it difficult or impossible to prevent them later.).
128
. Cf. Howard Shelanski, Antitrust and Deregulation, 127 YALE L.J. 1922 (2018) (discussing
the special role of antitrust in areas where other forms of regulation are weak or absent).
1158 KANSAS LAW REVIEW [Vol. 68
monopolies,
129
or the production of goods and services subject to winner-
take-most properties.
130
But this does not mean that the exercise of market
power by a dominant firm in such a position is not still problematic,
131
nor
that consumers could not benefit from a greater number of independent
competitors.
132
Here, again, an entrenchment approach to merger
enforcement may offer solutions that elude contemporary antitrust policy.
A. Ineffectiveness of Common Theories
The exercise of monopoly power by a durable monopolist is similar to
tacit collusion in the sense that it, too, is insulated from disturbance by
modern antitrust policy. The evolution of monopolization analysis under
Section 2 of the Sherman Act has placed beyond dispute the proposition
that a dominant firm can legally exercise market power,
133
and also that it
can legally seek to obtain market power in all but a narrow variety of
exclusionary ways.
134
This permissive approach to the exercise of market
power is defensible on many grounds,
135
and may be the wisest course of
action in situations where monopoly is contested or the exercise of market
power is transient.
But it leaves a gap in antitrust’s protection of consumers. If a firm
acquires a dominant position with the protection of barriers to entry,
substantial scale or network effect advantages, or similar impediments to
contestability, then it may unleash all the evils of monopoly with little fear
129
. See generally, John E. Kwoka, The Role of Competition in Natural Monopoly: Costs, Public
Ownership, and Regulation, 29 REV. INDUS. ORG. 127 (2006) (discussing the formation and
consequences of natural monopoly and potential gains from competition within this type of market).
130
. Cf. Richard Schmalensee, Antitrust Issues in Schumpeterian Industries, 90 AM. ECON. REV.
192 (2000) (noting differences in the interpretation of competitive motive in winner-take-all markets);
A. Douglas Melamed, Network Industries and Antitrust, 23 HARV. J.L. & PUB. POLY 147 (1999)
(discussing how competition subject to large network effects relates to traditional antitrust analysis).
131
. Even natural monopoly exhibits the properties of monopoly. In the single-price context,
for example, it entails pricing above the socially efficient level and deadweight loss. Depending on
the circumstances, natural monopoly may or may not exhibit rent seeking inefficiencies as well. Cf.
POSNER, supra note 98, at 1315 (discussing rent seeking inefficiencies when firms use certain
activities to gain market power).
132
. See Baker, supra note 6, at 5 ([Large tech platforms] have delivered substantial consumer
benefits, and their conduct does not necessarily violate antitrust laws. Yet consumers and the U.S.
economy as a whole would likely benefit even more if they faced greater competition.); Kwoka,
supra note 129 (observing potential social gains from competition, even within markets tending
toward natural monopoly).
133
. Verizon Commcns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004)
(“The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not
only not unlawful; it is an important element of the free-market system.).
134
. See 3 PH ILIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ch. 7, at 199221 (4th
ed. 2015) (discussing historically important patterns of anticompetitive monopolization conduct).
135
. E.g., Brooke Grp. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 223 (1993)
(propounding a permissive rule on preparatory price, partly in recognition that low prices generally
benefit consumers).
2020] ANTICOMPETITIVE ENTRENCHMENT 1159
of repercussion from either market forces or antitrust.
136
To some
observers, the rise of large and ostensibly uncontested technology
companies exemplifies this problem today.
137
Especially concerning, given this hands-off treatment, is the
acquisition of nascent rivals by dominant firms. These acquisitions are
within the reach of antitrust law: they could, for example, be attacked as
the maintenance of monopoly under Section 2, or as acquisitions tending
substantially to lessen competition under Section 7.
138
In a few extreme
cases, like a monopolist buying its only rival, these laws provide a
straightforward path to intervention.
139
But in most cases, the acquisition
of a small or nascent rival enjoys powerful insulation against antitrust
interference.
The challenges for enforcement are similar to those facing opposition
to mergers of firms that are already tacitly colluding, discussed above in
Section IV.A. One is the possible expansion of relevant markets where
the dominant firm is already exercising its market power at the time it
acquires a still nascent rival.
140
This problem is similar enough to that
discussed in the tacit collusion context that it does not require repetition
here. The other and more serious problem is the difficulty of predicting
specific competitive injuries in this situation.
As before, the need for specific prediction arises from the preventative
focus of modern antitrust analysis. Intervention is usually premised on the
articulation of a fact-based “reasonable probability” that the acquisition
will substantially lessen future competition.
141
Arguably, the required
136
. See AREEDA & HOVENKAMP, supra note 134, ¶ 634b, at 7778 (making a similar point).
137
. Cf. Jack Nicas, Karen Weise & Mike Isaac, How Each Big Tech Company May Be Targeted
by Regulators, N.Y. TIMES (Sept. 8, 2019), https://www.nytimes.com/2019/09/08/technology/antitrust
-amazon-apple-facebook-google.html [https://perma.cc/Y4FX-B7Y9].
138
. See United States v. Grinnell Corp., 384 U.S. 563, 57071 (1966) (identifying the
maintenance of [monopoly] poweras conduct falling within the offense of monopoly); Clayton Act,
ch. 323, § 7, 38 Stat. 730, 73132 (1914) (current version at 15 U.S.C. § 18 (2012)) (prohibiting
mergers, the effects of which may be to substantially lessen competition . . . , or tend to create a
monopoly).
139
. See AREEDA & HOVENKAMP, supra note 134, ¶ 701c, at 20203 (Suppose that a monopolist
who has long supplied 99 percent of its market acquired the one firm supplying the remainder of that
market. The acquisition should be prevented even if we assume that the small firm would probably
continue to play only a very minor role.); id. ¶ 701d, at 20305 (applying similar reasoning to a
monopolists acquisition of a uniquepotential competitor).
140
. See supra notes 11011 and accompanying text (explaining how the ongoing exercise of
market power may result in a broad relevant market under the now-standard approach to market
definition in merger analysis). It is less clear that this artificial expansion of the relevant market would
apply under maintenance of monopoly analysis. See generally White, supra note 86 (discussing
market definition in monopolization analysis).
141
. See United States v. Siemens Corp., 621 F.2d 499, 50607 (2d Cir. 1980) (requiring for
purposes of determining whether such relief is appropriate . . . at least a reasonable probabilitythat
the acquiring firm would enter the market . . . and preferably clear proof that entry would occur
1160 KANSAS LAW REVIEW [Vol. 68
showing is lower where the acquisition is by a monopolist and involves a
rival that is competitively superior to other nascent rivals.
142
But the
distinction seems modest, since demonstration of competitive
distinctiveness presents many of the same proof problems as the
“reasonable probability” standard itself.
Those proof problems can be severe. Since the nascent rival is
almost by definitionnot yet competing at the level it might in the future,
intervention rests on a credible prediction of future competitive success
that may be difficult or impossible to build upon the limited record of its
behavior to date. In special cases, like the acquisition of a rival with an
important patent right, this showing may be possible.
143
But in other cases,
demonstration of a nascent firm’s specific importance to future
competition can be difficult indeed.
It is especially troubling to note that this state of enforcement policy
actually creates perverse incentives for nascent firms to avoid competing
too aggressively with dominant rivals. Acquisition by a dominant firm
may be a lucrative proposition for the small firm’s stakeholders. And since
the prospects of easy acquisition decrease as a nascent firm builds a record
of successful competition, new and potentially disruptive firms actually
have a good reason to think twice before they begin to engage in serious
competition with a larger rival under the current framework.
B. Promise of an Entrenchment Theory
Here, too, it is straightforward to apply the entrenchment theory of
merger enforcement to this otherwise problematic fact pattern. The focus
on acquisitions by a dominant firm means that the requirement of an
already concentrated market is satisfied by construction. Though it
remains a matter to be proven, evidence of current market power is likely
to exist as well. Whether on structural or behavioral grounds, the
possession of “monopoly power” already contemplates something like
(citations omitted)); Mercantile Tex. Corp. v. Bd. of Governors Fed. Reserve Sys., 638 F.2d 1255,
126869 (5th Cir. 1981) (adopting this reasonable probabilityrequirement and explaining that it
encompasses a persuasive rationale demonstrating [why future competition would unfold as
predicted]); see also Werden & Limarzi, supra note 23, at 122 ([T]he rationale usually is that the
acquisition would eliminate the reasonable probabilitythat the nascent rival would have a substantial
impact on future competition.).
142
. See AREEDA & HOVENKAMP, supra note 134, ¶¶ 701c701e, at 202–06 (contemplating less
exacting proof requirements where a monopolist acquires a unique rival, but returning to concerns
about speculation and the need for more specific proof where the acquired firm is not different from
other small and nascent rivals).
143
. See, e.g., Hovenkamp, supra note 112, at 9 (discussing the serious threat to competition posed
by the acquisition and nonuse of an important patent).
2020] ANTICOMPETITIVE ENTRENCHMENT 1161
substantial market power today.
144
The final requirement, that current market concentration is facilitating
the exercise of market power, also seems unlikely to present a serious
challenge. To the extent that things like unique scale or currently
advantageous network effects are the drivers of dominance and market
power, the presence of rivals with the capacity to contest these advantages
would presumably limit and possibly reverse the exercise of market
power.
145
There is again a parallel between this inference and the
permissive treatment of dominant firms today. One cannot simultaneously
believe that competition and contestability will often constrain dominant
firms while doubting that concentration and an absence of serious
competitors will facilitate the exercise of market power.
146
The entrenchment approach to merger enforcement prescribes the
aggressive injunction of mergers in situations in which a dominant firm
seeks to acquire even a nascent and uncertainly competitive rival. This
satisfies calls in the antitrust literature for enhanced enforcement against
acquisitions of nascent and potential rivals.
147
That result is important, but
the path to the result matters more. The entrenchment approach sidesteps
the current enforcement roadblock of needing to prove uncertain future
competitive effects by instead focusing attention on the anticompetitive
status of the market today. The point of enjoining the acquisition of small
and nascent firms in this approach is not to prevent any specific lessening
of future competition (the preventative objective). Rather, the point is to
preserve existing opportunities for future competition where conditions
are already quite bad, even when specific predictions of competitive
effects are not yet possible on the available evidence (the entrenchment
objective).
As before, this approach has the attractive property that it addresses a
gap in the modern antitrust framework without requiring drastic policy
changes that would be involved, for example, in a strategy of breaking up
144
. See, e.g., United States v. E.I. Du Pont de Nemours & Co., 351 U.S. 377, 391 (1956)
(“Monopoly power is the power to control prices or exclude competition.).
145
. This argument seems especially strong in the tech context. See, e.g., Wessel, supra note 3, at
113 (Acquisitions that in the past were too small to attract the usual antitrust scrutiny can eliminate
potential competition, especially in a world where a company like WhatsApp can grow in just a few
years to reach a billion users a day.).
146
. Cf. Carstensen, supra note 56, at 22021 (Markets are dynamic and the future is notoriously
unpredictable . . . . What is essential from the perspective of competition policy is to have a significant
number of firms competing in price, quality, and innovation.).
147
. E.g., Shapiro, supra note 11, at 73940 (One promising way to tighten up on merger
enforcement would be to apply tougher standards to mergers that may lessen competition in the future,
even if they do not lessen competition right away. In the language of antitrust, these cases involve a
loss of potential competition.”); Hovenkamp, supra note 24, at 70 (A large firms acquisition of a
small, highly innovative firm can raise serious long run competition issues, even if the two firms are
not competitors at the time of the acquisition. Such an acquisition may not have an immediate impact
on price.).
1162 KANSAS LAW REVIEW [Vol. 68
dominant firms or subjecting their business decisions to governmental
regulation. One might object that the entrenchment approach “punishes”
large firms for obtaining dominance,
148
but relative to other possible
interventions, the prohibition on acquiring nascent rivals seems a modest
burden.
149
This is especially true in light of the previously noted
availability of an efficiencies defense, in which the dominant firm would
be free to prove how acquiring a rival would enable it to achieve special
and socially productive capabilities that its scale and resources do not
already allow.
150
Concerns that this entrenchment approach to dominant firms could
lead to excessive interference and injunction of benign acquisitions are
reasonable, but ultimately unpersuasive. As noted previously,
151
the
optimal balance of false-positive and false-negative errors actually leans
in favor of relatively more false positives (more aggressive enforcement)
when the market power implications of a false negative are otherwise
largely outside the reach of antitrust intervention.
152
A more circumspect answer must be given to the concern that small
firms, relying on acquisition as a form of compensation, may have less
incentive to enter and innovate under the strictures of the entrenchment
approach.
153
This concern relies on two implicit assumptions: (1) that
incentives for innovation and entry are not currently super optimal and (2)
that alternative buyers would not exist to take the place of a dominant firm.
But subject to these qualifiers, it is a fair critique of the entrenchment
approach. The cost may be justified by benefits of greater future
competition under this approach, but it should not be ignored.
154
148
. United States v. Aluminum Co. of Am., 148 F.2d 416, 430 (2d Cir. 1945) (The successful
competitor, having been urged to compete, must not be turned upon when he wins.).
149
. See Hovenkamp, supra note 24, at 7374 (making a similar point about the low cost of
preventing a prospective merger, relative to other antitrust remedies).
150
. See Shapiro, supra note 11, at 740 (noting the problem of distinguishing typical acquisitions
of nascent rivals from situations in which the dominant incumbent can and will greatly expand the
reach and usage of the target firms products); supra note 121 and accompanying text (discussing the
availability of an efficiencies defense in modern merger analysis).
151
. See supra note 94 and accompanying text (discussing error cost balancing).
152
. Cf. Shapiro, supra note 11, at 741 ([T]here would be a big payoff in terms of competition
and innovation if the DOJ and FTC could selectively prevent mergers that serve to solidify the
positions of leading incumbent firms, including dominant technology firms, by eliminating future
challengers . . . . Sound competition policy would tolerate some false positives . . . in order to avoid
some false negatives . . . .”).
153
. Cf. United States v. Vons Grocery Co., 384 U.S. 270, 301 (1966) (Stewart, J., dissenting)
(“[B]y foreclosing future sale as one attractive avenue of eventual market exit, the Courts decision
may over the long run deter new market entry and tend to stifle the very competition it seeks to
foster.).
154
. See generally Kevin A. Bryan & Erik Hovenkamp, Startup Acquisitions, Error Costs, and
Antitrust Policy, 87 U. CHI. L. REV. 331 (2020) (arguing for greater antitrust enforcement against the
acquisition of startup firms by dominant incumbents); Mark A. Lemley & Andrew McCreary, Exit
2020] ANTICOMPETITIVE ENTRENCHMENT 1163
Finally, one might question whether the entrenchment approach can
be contained once it is unleashed. The discussion of this paper has been
limited to nascent competitors (i.e., current but small rivals), but the
approach could be extended to potential competitors and firms in adjacent
markets.
155
This may, in fact, be necessary to address concerns about
technology competition,
156
as well as some concerns about mergers of
healthcare providers.
157
The difficulty of identifying clear limiting
principles is a valid and important concern, but not necessarily a fair
critique of the entrenchment approach in comparison to other strategies for
addressing current concentration and market power concerns. Any effort
to address problems in areas as complicated as innovation and technology
competition is going to face challenges in defining the appropriate scope
of competitors. Relative to some of the more novel and sweeping reform
proposals, situation of the entrenchment approach within the modern
antitrust framework gives it at least a fighting chance of getting these
difficult scope questions close to right.
158
Strategy (Stan. Law & Econ. Olin Working Paper Series, Paper No. 542, 2019),
https://ssrn.com/abstract=3506919 [https://perma.cc/KKM8-W2NP] (documenting the negative
consequences of consistent start-up acquisition and considering alternative ways to fund innovation);
D. Daniel Sokol, Vertical Mergers and Entrepreneurial Exit, 70 FLA. L. REV. 1357 (2018) (discussing
the need to balance competitive concerns against the efficiency of entrepreneurial exit when nascent
rivals are acquired by tech companies).
155
. See Werden & Limarzi, supra note 23, at 123 (In the same sense that nascent competition
has just recently crossed the line separating potential from actual competition, imminent
competition will soon cross the line.); AREEDA & HOVENKAMP, supra note 134, ¶¶ 701c701e, at
20206 (discussing similarities in the acquisitions of small,” “potential,and relatedcompetitors).
Indeed, the Supreme Courts analysis of potential competition in FTC v. Proctor & Gamble Co. aligns
with the entrenchment approach in important respects. E.g., 386 U.S. 568, 578 (1967) (observing, in
the process of upholding injunction of a conglomerate merger, that the acquired companys industry
was already oligopolistic before the acquisition, and price competition was certainly not as vigorous
as it would have been if the industry were competitive).
156
. See, e.g., Shapiro, supra note 11, at 740 (One common fact pattern that can involve a loss of
future competition occurs when a large incumbent firm acquires a highly capable firm operating in an
adjacent space . . . . Acquisitions like these can lessen future competition, even if they have no such
immediate impact.).
157
. See, e.g., Leemore Dafny, Kate Ho & Robin S. Lee, The Price Effects of Cross-Market
Mergers: Theory and Evidence from the Hospital Industry, 50 RAND J. ECON. 286 (2019); Matthew
S. Lewis & Kevin E. Pflum, Hospital Systems and Bargaining Power: Evidence from Out-of-Market
Acquisitions, 48 RAND J. ECON. 579 (2017); Gregory S. Vistnes & Yianis Sarafidis, Cross-Market
Hospital Mergers: A Holistic Approach, 79 ANTITRUST L.J. 253 (2013).
158
. This approach and objective broadly align with other recent efforts to reconcile gaps in
antitrust law with developments in economic thinking. See, e.g., C. Scott Hemphill & Philip J. Weiser,
Beyond Brooke Group: Bringing Reality to the Law of Predatory Pricing, 127 YALE L.J. 2048 (2018)
(demonstrating the limits of extant predatory pricing law, and showing points of flexibility within the
current framework); Hovenkamp & Shapiro, supra note 16 (defending on economic grounds, and
proposing some ways to strengthen the use of structural presumptions in merger review).
1164 KANSAS LAW REVIEW [Vol. 68
CONCLUSION
Though it may appear modest in relation to other contemporary
antitrust reform proposals, this article shows how the reintroduction of
entrenchment theories into modern antitrust could significantly change the
enforcement landscape. The entrenchment approach provides a strategy,
already accepted in existing caselaw, for addressing the exercise of market
power in areas where it is essentially beyond the reach of antitrust today.
I have discussed tacit collusion and the exploitation of durable monopoly
power as two examples where entrenchment theories could address current
concerns, but there is no reason to think that the strategy is limited to these
examples. Potential applications include problematic competitive
structures in everything from traditional manufacturing, to high
technology, to hospitals and healthcare. With that said, the reintroduction
of a long dormant enforcement theory would not come free of issues to
consider and complexities to unwind. I do not pretend to address all these
details in this brief article. I do, however, hope that I have adequately
demonstrated the potential of an entrenchment approach for merger
enforcement, and that the adoption of this approach may lead to a mature
enforcement strategy in years to come.
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The increase is not stable over the entire period. Margins increase most during the 80s, 90s, and after
  • Jan De Loecker
  • Jan Eeckhout
  • Gabriel Unger
Jan De Loecker, Jan Eeckhout, & Gabriel Unger, The Rise of Market Power and the Macroeconomic Implications, NBER Working Paper No. 23687, at *1 (2019). The increase is not stable over the entire period. Margins increase most during the 80s, 90s, and after 2008. Id. at *3.
at 94. cases and standard forward-looking merger analysis)
  • Id
Id. at 94. cases and standard forward-looking merger analysis).
noting, but not specifically predicting, various possible ways that the elimination of current or potential competition between the merging firms might foreclose future competition)
  • Id
Id. (noting, but not specifically predicting, various possible ways that the elimination of current or potential competition between the merging firms might foreclose future competition).
noting differences in the interpretation of competitive motive in winner-takeall markets)
PROC. 192 (2000) (noting differences in the interpretation of competitive motive in winner-takeall markets);