Competition and Risk

Merger review in the United States has overlooked a significant competition harm: increasing risk. Mergers can increase both direct and systemic risk. There is now persuasive evidence that negative shocks to a firm can harm the firm’s consumers and trading partners, leading to national economic effects. And, as the COVID-19 pandemic has shown all too clearly, how we structure our markets can become a matter of life and death overnight. I argue that mergers that increase risk by harming competition can be blocked under the Clayton Act. Risk should therefore be treated like innovation in merger review as a factor that can increase or decrease merger legality. I show when a merger is likely to change risk, to whom, and in what direction. Important factors include pre- and post-merger market power, consumer exposure, and economic centrality. When a merger increases risk because of a harm to competition, that increased risk is an antitrust harm and can therefore be used to block the merger. Moreover, the Federal Trade Commission and Department of Justice’s prosecutorial discretion allows them to consider risk harms in merger review even when such harms are not the direct result of reduced competition. To illustrate, I apply risk analysis to a large generic pharmaceuticals merger. I conclude with recommendations on how to incorporate risk analysis into merger review. Doing so reveals otherwise invisible but significant merger harms and demonstrates that merger efficiencies have serious costs in addition to their often-discussed benefits. In an Appendix, I propose language for a new section on risk that the new administration can consider if it revises the DOJ and FTC’s Horizontal Merger Guidelines