(Drivebycuriosity) - It seems that the Biden administration hates mergers. Jonathan Kanter, leader of the Antitrust Division of the Justice Department, started to sue companies who dare to buy other companies. Recently he won a lawsuit against the planned merger of the publishing houses Penguin Random House and Simon & Schuster. Likewise, Lina Khan, chair of the mighty Federal Trade Commission (FTC), wants to nullify Meta`s acquisition of Within, designers of the virtual reality fitness app Supernatural. The Khan has also sued to halt Microsoft`s purchase of Activision Blizzard, a video game company. Both powerful agencies started to fight any merger by a big company. But are mergers really so bad?
A merger reduces the number of competitors. If 2 companies merge, who together are the sole providers of certain goods (or services), then they create a monopoly. That would be bad. Such a new monopolist could hike prices and/or reduce quality & services, at least as long as no other company offers similar products or services. But if there are 3 or more companies on this market then the situation would be different. Others would still be able to compete against the newly formed company. The rivalry could even become stronger because the merger would create a bigger and stronger company. A market with at least 3 big and strong competitors, along with lots of financial fire power, has more fierce competition than a market comprised of hundreds of small competitors having weaker finances (Kantzenbach ). Take for instance the aggressive competition between Walmart, Target and Amazon for e-shoppers or between Meta, Google, Microsoft & Amazon for advertisers. If Meta and Google - God forbid - would merge the competition could get even more intense because that new giant might attack her rivals Microsoft, Apple & Co with even more aggression.
None of the disputed mergers created (or would create) a monopoly. If the merger of Penguin Random House & Simon & Schuster would have gone through the company would still have to compete against myriads of other publishers. But the court did not care about competition at all. The judge dismissed the defenders` claim that the merger would reduce costs (raising efficiency) and therefore lead to lower prices and benefit book buyers. Instead the judge agreed with complainant Kanter`s claim that the merger might reduce the income of some bestseller writers like Stephen King - ignoring millions of book purchasers who might have benefited from lower book prices ( twitter).
If Microsoft would overtake Activision Blizzard the merged company would just become the world’s number three gaming company by revenue, behind Tencent and Sony ( cnbc). The video game industry is massive and very, very competitive, writes Reason magazine (reason ). Competition in the gaming market could even get stronger because Microsoft/Activision together could challenge the market leaders even more. But the Khan, who is not educated as economist and never had a real job, does not care. She belongs to the Neo-Brandesians, a left-leaning group who see private enterprise as bad and want to put the US economy under government control, according to Khan´s colleague and fellow FTC commissioner Christine Wilson (ftc.gov ).
Khan`s FTC current attack on Meta is based on the claim that the purchase of tiny Within would illegally boost Meta’s market power in the nascent virtual reality industry and constrain competition in the future. Can the Khan predict the future? How can the Khan know how the virtual reality will develop? Did News Corp. owner Rubert Murdoch`s purchase of the social network MySpace discourage Zuckerberg? Did the Khan notice that there are already some very serious competitors including ByteDance, Google, Apple and Sony? Apparently the Khan ignores that the number of competitors in the virtual reality market is growing fast. The Khan has already made it clear that she dislikes big companies in general and fights them whatever this may cost the taxpayers ( fee.org inc.com).
Even if Kanter & Kahn don´t win their lawsuits they impose high costs on any merger - and their investigations & law suits delay any merger which will add additional costs. So these powerful agencies - with huge budgets (financed with tax payer money) and no cost control - might discourage the boards of the implied companies. They might give up on potential mergers and acquisitions because they fear they will be forced to waste time and money defending themselves against nuisance lawsuits ( realclearmarket).
Mergers make sense because they save costs (efficiency gains). When for instance 2 bakeries in a neighborhood merge they will need just one baking oven and can cede one of their existing ovens and also some baking machines. A merger leads to a bigger company which could create economies of scale, meaning lower average costs by a better utilization of capacities and overhead. Such economies of scale lead to lower costs and prices - beneficial for consumers and the whole economy.
But Kanter & Khan, both powerful bureaucrats whom nobody elected (both chosen by Biden), do not care about economics, efficiency, cost savings, consumers & the economy. Both hate mergers because they create a bigger company. Both - and their fellow Neo-Brandeisians - declare big as bad, except it means big government (drivebycuriosity ).
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