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Preventing the Curse of Bigness Through Conglomerate Merger Legislation, Essays (university) of Financial Management

University of Baltimore (UB)Financial Management

The limitations of the antitrust laws in blocking large corporate mergers and proposes model conglomerate merger legislation to prevent significant increases in corporate political power and other forms of non-economic power caused by the largest mergers. The proposed legislation would target every merger that exceeds clearly specified asset thresholds. The document undertakes a legal, economic, and political analysis of conglomerate merger legislation.

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Preventing the Curse of Bigness Through
Conglomerate Merger Legislation
Robert H. Lande & Sandeep Vaheesan*
ABSTRACT
The antitrust laws, as they are presently interpreted, are incapable of
blocking most of the very largest corporate mergers. They successfully
blocked only three of the seventy-eight largest finalized mergers and
acquisitions (defined as the acquired firm being valued at more than $10
billion) that occurred between 2015 and 2019. The antitrust laws also would
permit the first trillion-dollar corporation, Apple, to merge with the
previously third largest corporation, Exxon/Mobil. In fact, today every U.S.
corporation could merge until just ten were left—so long as each owned only
10% of every relevant market.
Even though the Congresses that enacted the anti-merger laws did so,
among other aims, to limit the political power of corporations, today the
federal antitrust agencies and courts interpret these laws only in terms of
price and other economic effects within discrete markets. Under current
merger practice, the enhanced political power of corporations is irrelevant.
However, from Senators Elizabeth Warren and Bernie Sanders on the left,
to President Trump and many others on the right, there is a renewed interest
in using antitrust to control corporate size, structure, and practices. There is
popular desire both to prevent large mergers and to break up existing
companies, such as Facebook and Google, that achieved their dominant
positions in part due to acquisitions.
In light of recent developments within most of the political spectrum, this
Article proposes model conglomerate merger legislation suitable for our era.
This legislation would target every merger that exceeds clearly specified
asset thresholds. We are proposing a law that would block every merger in
which both firms have assets exceeding $10 billion, unless they spin-off assets
so that their increase in size falls below this figure. This threshold would
*Author Lande is Venable Professor of Law, University of Baltimore School of Law. Author
Vaheesan is Legal Director at the Open Markets Institute. The authors are grateful to Neil W.
Averitt, Matthew Buck, Henry F. Carey, Kenneth M. Davidson, Albert A. Foer, Diana Moss, and
Howard Marvel for extremely helpful comments and suggestions, and to Nicholas Jordan and
Jonathan Gross for excellent research assistance. All of the opinions expressed in this Article
should be attributed only to the authors.
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Download Preventing the Curse of Bigness Through Conglomerate Merger Legislation and more Essays (university) Financial Management in PDF only on Docsity!

Preventing the Curse of Bigness Through

Conglomerate Merger Legislation

Robert H. Lande & Sandeep Vaheesan*

ABSTRACT

The antitrust laws, as they are presently interpreted, are incapable of

blocking most of the very largest corporate mergers. They successfully

blocked only three of the seventy-eight largest finalized mergers and

acquisitions (defined as the acquired firm being valued at more than $

billion) that occurred between 2015 and 201 9. The antitrust laws also would

permit the first trillion-dollar corporation, Apple, to merge with the

previously third largest corporation, Exxon/Mobil. In fact, today every U.S.

corporation could merge until just ten were left—so long as each owned only

10% of every relevant market.

Even though the Congresses that enacted the anti-merger laws did so,

among other aims, to limit the political power of corporations, today the

federal antitrust agencies and courts interpret these laws only in terms of

price and other economic effects within discrete markets. Under current

merger practice, the enhanced political power of corporations is irrelevant.

However, from Senators Elizabeth Warren and Bernie Sanders on the left,

to President Trump and many others on the right, there is a renewed interest

in using antitrust to control corporate size, structure, and practices. There is

popular desire both to prevent large mergers and to break up existing

companies, such as Facebook and Google, that achieved their dominant

positions in part due to acquisitions.

In light of recent developments within most of the political spectrum, this

Article proposes model conglomerate merger legislation suitable for our era.

This legislation would target every merger that exceeds clearly specified

asset thresholds. We are proposing a law that would block every merger in

which both firms have assets exceeding $10 billion, unless they spin-off assets

so that their increase in size falls below this figure. This threshold would

*Author Lande is Venable Professor of Law, University of Baltimore School of Law. Author Vaheesan is Legal Director at the Open Markets Institute. The authors are grateful to Neil W. Averitt, Matthew Buck, Henry F. Carey, Kenneth M. Davidson, Albert A. Foer, Diana Moss, and Howard Marvel for extremely helpful comments and suggestions, and to Nicholas Jordan and Jonathan Gross for excellent research assistance. All of the opinions expressed in this Article should be attributed only to the authors.

76 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

block at most approximately fifteen to twenty-five of the largest mergers each

year.

This Article undertakes a legal, economic, and political analysis of

conglomerate merger legislation. This demonstrates that our proposed

legislation would: ( 1 ) Produce no significant losses in corporate efficiency;

( 2 ) Be clearer and more predictable than the existing anti-merger laws and

thus would enhance the rule of law; and ( 3 ) Help prevent significant

increases in corporate political power and other forms of non-economic

power caused by the largest mergers.

INTRODUCTION

The U.S. antitrust laws today provide a very limited check on corporate

consolidation. For example, they successfully blocked only three of the

seventy-eight largest finalized mergers and acquisitions (defined as the

smaller firm being valued at more than $10 billion by the acquirer) that

occurred between 2015 and 2019.^1 They also would permit the first trillion

dollar corporation, Apple,^2 to merge with the third largest (as of the summer

of 2019), Exxon/Mobil.^3 In fact, today every U.S. corporation could merge

until just ten were left—so long as each owned only 10% of every relevant

market.^4

  1. In addition, many of these eighty-three mergers were permitted subject to relatively minor divestitures or conduct relief. See infra Appendix II.
  2. Rob Davies, Apple Becomes World’s First Trillion-Dollar Company , GUARDIAN (Aug. 2, 2018), https://www.theguardian.com/technology/2018/aug/02/apple-becomes-worlds-first- trillion-dollar-company [https://perma.cc/5WXR-NWCC]. Of course, the market capitalization value of Apple constantly fluctuates.
  3. See Erin Duffin, The 100 Largest Companies in the World by Market Value in 2018 , STATISTA (Aug. 12, 2019), https://www.statista.com/statistics/263264/top-companies-in-the- world-by-market-value/ [https://perma.cc/3MED-H6VZ]. If these corporations overlap to any potentially anticompetitive degree, such that the effects of the overlaps “may be substantially to lessen competition, or to tend to create a monopoly,” the overlaps could be spun off. See 15 U.S.C. § 18 (2019). There also is a chance these companies could be found to compete in one or more relevant “data markets”—such as the market for the types of information on purchasers that could help sellers to market products and services. This type of overlap would be much more difficult to cure by a minor divestiture. Whether the courts today would find such “relevant data markets” to exist is, however, a relatively untested possibility.
  4. Indeed, in theory today it might even be possible for mergers to occur until five firms each controlled 20% of every market in the United States! For a general analysis of merger standards see Peter C. Carstensen & Robert H. Lande, The Merger Incipiency Doctrine and the Importance of “Redundant” Competitors , 2018 WIS. L. REV. 783 (2018).

78 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

Amy Klobuchar, together with three co-sponsors, introduced a Bill that

would incorporate absolute size into merger analysis. 11 These concerns

follow a precedent set four decades ago by Senator Ted Kennedy when he

introduced a bill that would have prevented any merger between firms that

both exceeded roughly $7.5 billion (in 2019 dollars) in assets,^12 unless one of

two exceptions applied.^13 Its primary purpose was to help prevent increases

in corporate political and social power.^14 While libertarians may lament these

bills as public or political incursions on private prerogatives, it is worth

remembering that corporations are creatures of state action—endowed with

special privileges such as limited liability and potential immortality through

their charters.^15 The public has the right to regulate institutions it created in

the first place.

In recent years, popular concerns about corporate power, which formed

much of the impetus behind the enactment of the existing antitrust laws,^16

have reemerged. These public concerns include the political and social

power^17 possessed by the largest corporations. This apprehension has come

from both the left and the right sides of the political spectrum.^18

  1. Senator Klobuchar introduced S. 1812 to tighten the merger laws in a number of ways. See Consolidation Prevention and Competition Promotion Act of 2017, S. 1812, 115th Cong. (2017). In particular, this Bill would mandate, for the first time, a more skeptical review of any acquisition of $5 billion or more, or of any acquisition exceeding $50 million by a firm with assets exceeding $100 billion. Id. For these transactions, the legislation would switch the burden of proof and require that the merging firms prove that the acquisition will not be reasonably likely to lessen competition or tend to create a monopoly. Id.
  2. See Michael Pertschuk & Kenneth M. Davidson, What’s Wrong with Conglomerate Mergers? , 48 FORDHAM L. REV. 1, 17–18 (1979) (discussing Proposed S. 600, Section 2(a)). This bill was designed to prevent clearly specified exceptionally large mergers. Id. A key requirement was that both corporations have more than $2 billion in assets. Id. at 20. If $2 billion in 1979 dollars is adjusted by the Consumer Price Index, it would be the equivalent of $7,443 billion in March 2019 dollars. See CPI Inflation Calculator , BUREAU OF LABOR STATISTICS, https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2%2C000.00&year1=197901&year2= [https://perma.cc/7XSJ-PFTC].
  3. Senator Kennedy’s Bill contained an efficiencies defense. Pertschuk & Davidson , supra note 12, at 20. It also contained the provision that these mergers could proceed even without efficiencies, but only if the combined entity sold or spun off sufficient assets so that its overall size did not increase due to the merger. Id. Because of this provision, this legislation was often referred to as the “Cap-And-Spinoff” approach to merger enforcement. Id. at 17.
  4. Id.
  5. KATHARINA PISTOR, THE CODE OF CAPITAL: HOW THE LAW CREATES WEALTH AND INEQUALITY 47 – 76 (2019).
  6. For examples of the populist suspicion of the political power of large businesses, see infra Part II.
  7. An example of a relatively non-economic and non-political concern would be citizens’ privacy concerns.
  8. For examples from many different places on the political spectrum see infra Part III.

52:0075] CONGLOMERATE MERGER LEGISLATION 79

Considering these developments, Congress should revisit and revive

conglomerate merger legislation. 19 This Article will propose model

conglomerate merger legislation suitable for our era. This legislation should

supplement existing merger law by targeting every merger that exceeds

clearly specified asset thresholds, regardless of whether they involve direct

competitors, firms in adjacent markets, or firms in unrelated industries.^20

We are proposing a law that would block every merger in which both firms

have assets exceeding $10 billion, unless they spin-off assets so that their

increase in size falls below this figure.^21 This threshold would block at most^22

approximately fifteen to twenty-five mergers each year. 23 Reasonable

approaches to the conglomerate merger problem could be stricter 24 or

looser.^25 The goal of this Article is stimulate debate in this area.

This Article will undertake an updated legal, economic, and political

analysis of conglomerate merger legislation. This analysis will demonstrate

that our proposed legislation would: 1. Produce no significant losses in the

productive efficiency of corporations; 2. Be clearer and more predictable than

  1. See infra Part II.
  2. This cap would apply to horizontal, vertical, and conglomerate mergers and would complement existing law restricting horizontal and vertical mergers. For instance, a horizontal merger may violate both the Clayton Act and the law we propose. The proposal, however, would have the most impact on large mergers that are purely conglomerate in nature and may not be illegal under current anti-merger law. Our proposed legislation would only permit enforcement by the U.S. Department of Justice and the Federal Trade Commission. Congress could, of course, enact legislation that also allowed State and/or private enforcement.
  3. This figure should be adjusted yearly to account for inflation.
  4. Because our proposal would permit a merger to be consummated so long as the acquiring company spun off assets so that its overall size would increase by less than $10 billion, many large “above $10 billion” mergers could occur in large part. For example, suppose a $ billion firm purchased another firm for $14 billion. So long as the acquiring company spun off any assets—whether from the acquired firm or the acquiring firm—that exceeding $4 billion, the merger would not violate our proposal. We would expect this to happen in most cases involving acquisitions of less than $25 billion. We would not be surprised if $25 billion became the de facto threshold if our proposal were enacted.
  5. See Appendix II.
  6. For example, a $5 billion or $1 billion threshold could be used instead. Alternatively, the statute could focus upon the amounts of corporate sales, in addition to or instead of the amounts of corporate assets. Another possibility would be to block every merger by any firm with assets exceeding a clearly specified amount, such as $50 billion. This approach would have many advantages, including clarity and simplicity. Nevertheless, it is not our preferred alternative because if a $50 billion corporation purchased a company with assets of only $50 million, this would not cause a significant increment in its political power.
  7. Instead of a $10 billion threshold, Congress might decide only to ban mergers where both corporations had assets exceeding a larger figure, such as the $25 billion threshold suggested by Senator Warren, or even $50 billion. See Warren, supra note 9. A $50 billion threshold should at most affect a handful of mergers per year. See Appendix II.

52:0075] CONGLOMERATE MERGER LEGISLATION 81

Three abandoned on non-antitrust grounds

Nine pending

Ninety-two total

There are many ways to characterize and interpret this data. For example,

one could decide to exclude the mergers still pending and the mergers

blocked or abandoned on non-antitrust grounds. If this were done, then only

three out of seventy-eight of these mergers could be characterized as being

completely stopped (blocked or abandoned) because of the U.S. antitrust

laws.

II. WHY DO THE CURRENT ANTITRUST LAWS BLOCK SO FEW LARGE

TRANSACTIONS?

There is a simple answer to this question. The primary antitrust law that

affects merger enforcement is the Clayton Act, which was written to prevent

firms from acquiring rival companies or companies in a vertical relationship

where “the effect of such acquisition may be substantially to lessen

competition, or to tend to create a monopoly.”^26 Since the early 1980s, the

federal antitrust agencies have broken with Supreme Court precedent^27 and

  1. 15 U.S.C. § 18 (West. 2019). Even though the existing anti-mergers law also apply to conglomerate mergers, the government only briefly enforced the law against those few conglomerate mergers that could be characterized as potential competition mergers, and only infrequently challenged vertical mergers. RUDOLPH J. R. PERITZ, COMPETITION POLICY IN AMERICA, 1888 – 1992: HISTORY, RHETORIC, LAW 198 (1996). For a brief period in the 1960s through the early 1970s, the government successfully stopped some large conglomerate mergers on the basis of entrenchment, potential competition, and reciprocal dealing theories. E.g. , FTC v. Procter & Gamble Co., 386 U.S. 568 (1967); FTC v. Consolidated Foods Corp., 380 U.S. 592 (1965). The government has, in general, stopped litigating non-horizontal mergers. Before the 2017 government challenge to the vertical merger between AT&T and Time Warner, the government last litigated a vertical merger to final judgment in 1979. Fruehauf Corp. v. FTC, 603 F.2d 345 (2d Cir. 1979).
  2. In Brown Shoe Co. v. United States , the Supreme Court summarized the legislative intent animating the 1950 amendments to the Clayton Act. 370 U.S. 294, 315 – 16 (1962) (“The dominant theme pervading congressional consideration of the 1950 amendments was a fear of what was considered to be a rising tide of economic concentration in the American economy... [and] [t]hroughout the recorded discussion may be found examples of Congress’ fear not only of accelerated concentration of economic power on economic grounds, but also of the threat to other values a trend toward concentration was thought to pose.”).

82 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

reinterpreted the anti-merger statute to focus exclusively on mergers’ effects

on consumer welfare—an unsettled term.^28

The current interpretation of the Clayton Act (and antitrust laws in

general) does not explicitly include political or other considerations not tied

to specific markets.^29 Exceptionally large mergers may give rise to political

or privacy concerns, but the agencies seek to block these mergers only if it’s

likely they will have substantial detrimental economic effects within clearly

defined product and geographic markets. 30 As Section I discussed, the

enforcers and the courts have concluded that very few exceptionally large

mergers would adversely affect consumer welfare in ways that cannot be

prevented by conduct-oriented or structural remedies.^31

In enacting the antitrust laws, Congress sought to, among other aims,

restrict the social and political power of large corporations. The debates over

the principal federal anti-merger statute focused on how corporate mergers

led to increased corporate political power.^32 During the 1914 Clayton Act

  1. Consumer welfare is a very broad and controversial term. See Robert H. Lande, Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged , 34 HASTINGS L. J. 65 (1982) [hereinafter Lande, Wealth Transfers ]. At its broadest it includes concerns with prices to consumers, the transfer of wealth from purchasers to firms with market power (aka the theft of consumers’ surplus), quality, variety, and choice. See id. ; Robert H. Lande, A Traditional and Textualist Analysis of the Goals of Antitrust: Efficiency, Preventing Theft from Consumers, and Consumer Choice , 81 FORDHAM L. REV. 2349 (2013); see also Eleanor M. Fox, The 1982 Merger Guidelines: When Economists Are Kings? , 71 CALIF. L. REV. 281 (1983).
  2. See Lande, Wealth Transfers , supra note 28, at 127–30. Of course, the mergers of exceptionally large corporations could give rise to numerous indirect externalities, both economic and non-economic, but these normally are not evaluated under the antitrust laws. In unusual cases, moreover, a merger could affect privacy enough to affect competition within a market. See Robert H. Lande, The Microsoft-Yahoo Merger: Yes, Privacy is an Antitrust Concern 1 – 2 (Univ. of Baltimore Legal Studies Research Paper No. 2008 - 06, FTC: Watch No. 714 , 2008 ), https://papers.ssrn.com/sol3/papers.cfm?abstract_id= 1121934 [https://perma.cc/XVX7-J4KS]. These cases could be evaluated using traditional antitrust tools.
  3. See generally Carstensen & Lande, supra note 4.
  4. Of course, many of these decisions have been controversial, and would have been decided differently if they had been reviewed by different judges. See, for example, the decision in United States v. AT&T Inc. , which was upheld on appeal and denounced by the American Antitrust Institute. See United States v. AT&T Inc., 310 F. Supp. 3d 161 (D.D.C. 2018); AAI Issues Statement on D.C. Circuit’s Rejection of AT&T/Time Warner Appeal, Says Time Is Ripe for Vertical Merger Guidelines and a Vertical “Presumption , ” AM. ANTITRUST INST., https://www.antitrustinstitute.org/aai-issues-statement-on-dc-circuits-rejection-of-att-time- warner-appeal-says-time-is-ripe-for-vertical-merger-guidelines-and-a-vertical-presumption/ [https://perma.cc/EF3T-3TD6].
  5. This material has been adapted from Lande, Wealth Transfers , supra note 28, at 127–

84 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

into classes, breed discontent and hatred, and in the end riot, bloodshed, and

French revolutions.”^35

Similarly, during the 1950 Celler–Kefauver Act debates, many members

of Congress expressed striking misgivings regarding undue corporate

aggrandizement of power. They cited the alarming consequences of

concentration abroad.^36 For example, Senator Kefauver, a leading sponsor of

the bill, stated:

I am not an alarmist, but the history of what has taken place in other

nations where mergers and concentrations have placed economic

control in the hands of very few people is too clear to pass over

easily. A point is eventually reached, and we are rapidly reaching

that point in this country, where the public steps in to take over

when concentration and monopoly gain too much power. The taking

over by the public through its government always follows one or

two methods and has one or two political results. It either results in

a Fascist state or the nationalization of industries and thereafter a

Socialist or Communist state.^37

It is perhaps ironic that the antitrust laws, under present interpretation,

cannot prevent some extremely large mergers that could lead to the very types

of political and social problems that motivated the enactment of these laws.

A few scholars have argued that the Clayton and FTC Acts can be used to

stop pure conglomerate mergers on the basis of size alone. 38 Under the

  1. 51 CONG. REC. 15,955 (1914) (remarks of Sen. Borah).
  2. 95 CONG. REC. 11,486 (1949) (remarks of Rep. Celler) (“I want to point out the danger of this trend toward more and better combines. I read from a report filed with former Secretary of War Royall as to the history of the cartelization and concentration of industry in Germany: ‘Germany under the Nazi set-up built up a great series of industrial monopolies in steel, rubber, coal and other materials. The monopolies soon got control of Germany, brought Hitler to power and forced virtually the whole world into war.’”). It should be noted that Representative Celler’s interpretation of the historical events which led to Hitler’s rise to power is by no means universally shared. See, e.g. , ALAN BULLOCK, HITLER: A STUDY IN TYRANNY (1962).
  3. 96 CONG. REC. 16,452 (1950) (remarks of Sen. Kefauver). These strong views were not expressed only by the principal sponsors of the amendment. See, e.g. , id. at 16,446 (remarks of Sen. O’Mahoney) (“Collectivism is moving forward apace throughout the world, and industrial collectivism leads inevitably to political collectivism. That I would like to avoid.”). See id. at 16,503–04 (remarks of Sen. Aiken) (“All of us know too well what has happened in countries where opportunity has been vested in the hands of a few. The result has been that either socialization or a totalitarian form of government has taken over... .”).
  4. See Peter C. Carstensen & Nina H. Questal, Use of Section 5 of the Federal Trade Commission Act To Attack Large Conglomerate Mergers , 63 CORNELL L. REV. 841, 841– 42 (1978) (“This Article will demonstrate that section 5 of the Federal Trade Commission Act, in light of its legislative history and evolving Supreme Court interpretation, is an appropriate mechanism for dealing with conglomerate mergers.”); Harlan M. Blake, Conglomerate Mergers

52:0075] CONGLOMERATE MERGER LEGISLATION 85

dominant view of antitrust today, however, conglomerate mergers—indeed

nearly all mergers of any kind—are treated as competitively benign and legal

under the antitrust laws.^39 Our proposed legislation would thus revisit and

restore the progressive-populist aims of antitrust. This time, however, these

concerns would be enacted expressly into law and not be susceptible to

administrative and judicial reinterpretation.^40

III. THE LARGEST MERGERS LEAD TO CORPORATE POWER THAT

CONCERNS MANY PEOPLE IN VIRTUALLY EVERY PART OF THE

POLITICAL SPECTRUM

Corporate size often translates to political power. An extensive body of

research has found that firm size is correlated with more political activity.^41

Larger firms make larger contributions to political campaigns and devote

more resources to lobbying members of Congress and government agencies.^42

and the Antitrust Laws , 73 COLUM. L. REV. 555, 570 (1973) (“But the antitrust laws, including section 7, have since their beginnings been directed towards an even more fundamental objective: the prevention of the destruction or erosion of the competitive system, a form economic organization in which economic power in any form should not be permitted to limit the freedom of equally efficient smaller entrepreneurs to compete, on fair and equal terms, with larger firms or groupings of firms; and the avoidance of the political consequences of such an impairment of the traditional system.”).

  1. Professor John Kwoka has documented a steady decline in enforcement against even horizontal mergers in concentrated markets. John Kwoka, The Structural Presumption and the Safe Harbor in Merger Review: False Positives or Unwarranted Concerns? , 81 ANTITRUST L.J. 837, 867 (2017).
  2. Consider the radically different interpretations of the Sherman Act over time. Its open- ended text gives enforcers and judges broad power to reinterpret it. In 1958, the Supreme Court described the Sherman Act as a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conductive to the preservation of our democratic political and social institutions. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958). Two decades later, despite no revision to the statute, the Court, following a substantial change in its composition, stated that the Sherman Act is a “consumer welfare prescription.” Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (quoting ROBERT H. BORK, THE ANTITRUST PARADOX 66 (1978)).
  3. See, e.g. , Martin Gilens & Benjamin I. Page, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens , 12 PERSPS. ON POL. 564 (2014); Lester M. Salamon & John J. Siegfried, Economic Power and Political Influence: The Impact of Industry Structure on Public Policy , 71 THE AM. POL. SCI. REV. 1026, 1031 (1977).
  4. Gilens & Page, supra note 41; Salamon & Siegfried, supra note 41.

52:0075] CONGLOMERATE MERGER LEGISLATION 87

they are largely indifferent to the political concerns and preferences of the

middle and working classes.^49

Large firms exercise political power through campaign contributions. An

extensive body of empirical literature has found that large firms make larger

campaign contributions to members of Congress and political action

committees than small firms do.^50 Campaign contributions are an important

way to build and maintain political influence. While the findings on the

question are mixed, campaign contributions may increase the likelihood that

the member’s votes and other actions are aligned with the donor’s interests.^51

Political contributions can give corporate donors access to those in power.

Lending credence to what research had found,^52 Mick Mulvaney, the current

director of the Office of Management and Budget and former acting director

of the Consumer Financial Protection Bureau, openly admitted this dynamic

in a speech before bank lobbyists.^53 He stated that, as a member of Congress,

he granted preferential access to lobbyists who had donated to his political

campaigns.^54

Large firms also wield political power through lobbying, an arguably

much more important form of political activity than political contributions.^55

They often have large staffs of lawyers and lobbyists to present their

messages to politicians and regulators.^56 Relative to smaller firms, large firms

devote more resources to lobbying activity. 57 This lobbying allows

  1. Id.
  2. Wendy L. Hansen & Neil J. Mitchell, Disaggregating and Explaining Corporate Political Activity: Domestic and Foreign Corporations in National Politics , 94 AM. POL. SCI. REV. 891 (2000); David M. Hart, Why Do Some Firms Give? Why Do Some Give a Lot? High-Tech PACs, 1977- 1996 , 63 J. POL. 1230 (2001).
  3. Matthew D. Hill, G. Wayne Kelly & G. Brandon Lockhart, Determinants and Effects of Corporate Lobbying , 42 FIN. MGMT. 931, 954 (2013).
  4. Id.
  5. Renae Merle, Mulvaney Discloses ‘Hierarchy’ for Meeting Lobbyists, Saying Some Would Be Seen Only if They Paid , WASH. POST (Apr. 25, 2018), https://www.washingtonpost.com/news/business/wp/2018/04/25/mick-mulvaney-faces- backlash-after-telling-bankers-if-you-were-a-lobbyist-who-never-gave-us-money-i-didnt-talk- to-you/?utm_term=.12cae2d4ac30 [https://perma.cc/AF8W-G9HL].
  6. Id.
  7. Hui Chen, David C. Parsley & Ya-Wen Yang, Corporate Lobbying and Financial Performance (Oct. 2014), https://papers.ssrn.com/sol3/papers.cfm?abstract_id= [https://perma.cc/GH9L-WA52].
  8. See, e.g. , Jade Scipioni, Amazon Is Now the Biggest Corporate Lobbyist in Washington , FOX BUSINESS (Oct. 16, 2017 ), https://www.foxbusiness.com/features/amazon-is-now-the- biggest-corporate-lobbyist-in-washington [https://perma.cc/S5T6-HTAU].
  9. Richard Borghesi & Kiyoung Chang, The Determinants of Effective Corporate Lobbying , 39 J. ECON. & FIN. 606, 615 (2015); William R. Kerr, William F. Lincoln & Prachi Mishra, The Dynamics of Firm Lobbying , 6 AM. ECON. J.: ECON. POLICY 343, 346 (2014).

88 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

corporations to shape the narrative around an issue and influence members of

Congress and regulators. Lobbying is often an effective strategy for casting

doubt on the public benefits of legislation and regulation. 58 Corporate

lobbyists can create counter-narratives that proposed legislation restricting

their client’s activities would either not advance or undermine the public

interest.^59 For instance, despite triggering the worst economic crisis in nearly

eighty years, large banks and financial institutions in the United States,

through all-encompassing lobbying and public relations blitz, subsequently

avoided structural breakups and significant restrictions on their activity.^60

Indeed, the present weak enforcement of antitrust may, in part, be a

product of corporate power and influence over the federal antitrust agencies.^61

“Regulatory capture” occurs when a regulatory agency or enforcer is so

greatly influenced by businesses that it fails to act in the public’s interest.^62

Instead it acts in ways that benefits the players in the industry that the

regulators were charged with policing.^63 One possible cause of regulatory

capture is that the agency often has limited resources compared to the

regulated companies. 64 When the regulated business is a multi-billion-dollar

company, the disparity in resources can be especially large and regulatory

capture becomes more probable.^65

  1. Michael Hadani, Jean-Philippe Bonardi & Nicolas M. Dahan, Corporate Political Activity, Policy Uncertainty, and Firm Outcomes: A Meta-Analysis , 15 STRATEGIC ORG. 338 (2017).
  2. See generally ALBERT O. HIRSCHMAN, THE RHETORIC OF REACTION: PERVERSITY, FUTILITY, JEOPARDY (1991). Moreover, there sometimes is said to be an “iron triangle” of Congress, industry and the federal government. See Paul M. Johnson, A Glossary of Political Economy Terms: Iron Triangles , AUBURN UNIV. (2015), http://www.auburn.edu/~johnspm/gloss/iron_triangles [https://perma.cc/Z9M7-PZBU]. The federal government gives out a lot of special interest favors to Congressmen, and the bureaucrats, especially the higher-ups, go along, often in order to set themselves up for after they leave government service. Id. Lobbying occurs across industry and market lines, and conglomerate mergers can help produce a united front against reformers asking for accountability of government policies. Id.
  3. See generally Arthur E. Wilmarth Jr., Turning a Blind Eye: Why Washington Keeps Giving in to Wall Street , 81 U. CIN. L. REV. 1283 (2012).
  4. See Will Kenton, Regulatory Capture , INVESTOPEDIA (Oct. 23, 2019 ), https://www.investopedia.com/terms/r/regulatory-capture.asp [https://perma.cc/5SUR-AHG4].
  5. Id. ; see also Cary Coglianese, The Elusiveness of Regulatory Capture , The Regulatory Review (July 5, 2016), https://www.theregreview.org/2016/07/05/coglianese-the-elusiveness-of- regulatory-capture/ [https://perma.cc/LEZ6-3G7L].
  6. Kenton, supra note 61.
  7. Tejvan Pettinger, Regulatory Capture , ECON. HELP (May 24, 2018), https://www.economicshelp.org/blog/141040/economics/regulatory-capture/ [https://perma.cc/SCR6-4WQR].
  8. See generally id.

90 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

extraordinary influence of corporations. Over the past several decades,

corporate-funded economists and lawyers have played an outsized role in

antitrust debates.^71

Furthermore, corporate size confers power through the control of

economic resources. At a large corporation, a handful of individuals—

executives and directors—make decisions that affect entire cities, regions,

and even the nation. A decision to open a plant in one city, instead of another,

or to relocate a plant from the United States to a foreign country can affect

large numbers of people. Senator Sherman recognized how concentration of

assets in a few hands amounted to private government. 72 He asked his

colleagues to “consider... whether, on the whole, it is safe in this country to

leave the production of property, the transportation of our whole country, to

depend upon the will of a few men sitting at their council board in the city of

New York.”^73

Corporate size means that every nominally private decision has major

public implications.^74 They can use their control of key resources to stop

unfavorable government action and induce favorable action.^75

Consider the recent contest among states and cities to host Amazon’s

second headquarters. Amazon invited state and local governments across the

country to compete for this second headquarters in exchange for a pledge to

create 50,000 local jobs.^76 States and cities showered Amazon with a range

  1. Jesse Eisinger & Justin Elliott, These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers , PROPUBLICA (Nov. 16, 2016), https://www.propublica.org/article/these-professors-make-more-than-thousand-bucks-hour- peddling-mega-mergers [https://perma.cc/FWF8-QXQZ]; STEVEN TELES, THE RISE OF THE CONSERVATIVE LEGAL MOVEMENT: THE BATTLE FOR CONTROL OF THE LAW 85 – 92 (2008) (documenting Henry Manne’s success in raising money from large corporations to build the law and economics movement and help challenge then-prevailing thinking on antitrust law). For a documentation of the effects of the law and economics movement on judicial decision-making, see generally Elliott Ash, Daniel L. Chen & Suresh Naidu, Ideas Have Consequences: The Effect of Law and Economics on American Justice (June 26, 2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2992782 [https://perma.cc/7BXT-NPKH].
  2. 21 Cong. Rec. 2570 (1890).
  3. Id.
  4. See generally James W. Brock, Economic Concentration and Economic Power: John Flynn and a Quarter-Century of Mergers , 56 ANTITRUST BULL. 681 (2011).
  5. Id. at 728.
  6. Kim Hjelmgaard, Mike Snider & Elizabeth Weise, Amazon To Add Second Headquarters with up to 50,000 Jobs in Grab for Talent , USA TODAY (Sept. 7, 2017, 7:47 PM), https://www.usatoday.com/story/money/2017/09/07/amazon-plans-second-headquarters- dubbed-hq-2/640861001/ [https://perma.cc/WK5J-NJP8].

52:0075] CONGLOMERATE MERGER LEGISLATION 91

of carrots amounting to billions of dollars in tax incentives.^77 Exemplifying

the lengths to which governments were willing to go to lure Amazon, New

York Governor Andrew Cuomo (half-) jokingly even offered to change his

first name to Amazon if Amazon chose New York City.^78 This frenzied

competition illustrates the power of a large corporation over democratically

elected governments. And this episode is not an outlier but representative of

how large corporations use their power and the threat of relocation to pressure

and twist governments for their own ends.^79

B. Growing Political and Public Concern About Corporate Power

Public recognition of, and concern about, corporate political power is

growing. An increasing number of politicians and public figures are focused

on the political and social—as well as economic—power of large businesses.

This concern is not limited to one portion of the political spectrum. A diverse

set of voices and organizations are calling for tackling monopoly and

oligopoly power in American society.

Prominent liberal and progressive voices have demanded action to curb

the economic and political power of large corporations. Many Democrats

have made strengthening anti-merger and anti-monopoly law a key pillar of

  1. Spencer Soper, Amazon Is Under Attack for Seeking Tax Break in Exchange for HQ2 , BLOOMBERG (Sept. 7, 2018, 3:00 AM), https://www.bloomberg.com/news/articles/2018- 09 - 07/amazon-s-headquarters-bake-off-puts-it-in-corporate-welfare-spotlight [https://perma.cc/F48X-32M9].
  2. Karen Weise & J. David Goodman, Amazon Plans to Split HQ2 Between Long Island City, N.Y., and Arlington, Va ., N.Y. TIMES (Nov. 5, 2018), https://www.nytimes.com/2018/11/05/technology/amazon-second-headquarters-split.html [https://perma.cc/GV4Y-CMJN].
  3. John Browne, the former CEO of BP, described this dynamic in an interview with The Wall Street Journal. We do get the seat at the table because of our scope and size, whether we are the second or the third largest [oil] company is of very little import, but we’re certainly up there and we operate in places which are important to the United States government, and the United States government is important to us. We have large numbers of employees in the United States. That’s very important in a political system. And they are highly concentrated. So we have a very significant presence in Texas, Illinois, Alaska, and California. These are important because our employees are voters. BP Won’t Abandon Driving Force, Interview with John Browne, Wall St. J. (Nov. 25, 2003). For an in-depth analysis of one company’s domestic and international mobility, see generally JEFFERSON COWIE, CAPITAL MOVES: RCA’S SEVENTY-YEAR QUEST FOR CHEAP LABOR (2001).

52:0075] CONGLOMERATE MERGER LEGISLATION 93

Sanders condemned the present system in which “a small group of ultra-

wealthy CEOs are making the decisions that increasingly determine our

economic, environmental and political future.”^87

Senator Elizabeth Warren has offered extensive critiques of corporate

power, citing undue political influence as one of the evils of corporate

bigness.^88 In a keynote address at a conference hosted by the Open Markets

Institute in December 2017, Senator Warren warned that “[c]oncentrated

market power also translates into concentrated political power—the kind of

power that can capture our government. And that’s exactly what’s happening,

as President Trump and the Republicans in Congress bow to the power and

influence of these industrial giants and financial titans.”^89 Warren promised

that if elected president, she would break up Amazon, Facebook, and

Google.^90 She published a detailed plan to break up big tech companies,

including the creation of a threshold of $25 billion in annual revenue, above

which companies would be subject to restrictions and regulations including

mandatory divestitures of certain portions of the company. 91 Facebook

allegedly removed Warren’s political ads posted on Facebook that called for

breaking up Facebook.^92

Warren also called for breaking up some of the biggest farming

corporations “so that they not only do not have that kind of economic power,

  1. Bernie Sanders, Corporate Accountability and Democracy , BERNIE 2020 , https://berniesanders.com/issues/corporate-accountability-and-democracy/ [https://perma.cc/UXF8-TGBA].
  2. Elizabeth Warren, Opinion, Three Ways To Remake the American Economy for All , GUARDIAN (Dec. 6, 2017, 2:47 PM), https://www.theguardian.com/commentisfree/2017/dec/06/elizabeth-warren-monopolies- american-economy [https://perma.cc/MGS4-PVVC].
  3. Id.
  4. Sean Moran, Elizabeth Warren Proposes Breaking Up Amazon, Facebook, Google , BREITBART (Mar. 8, 2019), https://www.breitbart.com/politics/2019/03/08/elizabeth-warren- proposes-breaking-up-amazon-facebook-google/ [https://perma.cc/52WY-TTQG].
  5. Warren, supra note 9 (“To restore the balance of power in our democracy, to promote competition, and to ensure that the next generation of technology innovation is as vibrant as the last, it’s time to break up our biggest tech companies.”).
  6. Sanjana Karanth, Facebook Temporarily Removed Elizabeth Warren Ads Urging Breakup of Tech Giants , HUFFINGTON POST (Mar. 12, 2019), https://www.huffpost.com/entry/elizabeth-warren-facebook- ads_n_5c86fbb4e4b08d5b7864b594 [https://perma.cc/35LC-FD6W] (“Curious why I think FB has too much power? Let’s start with their ability to shut down a debate over whether FB has too much power. Thanks for restoring my posts. But I want a social media marketplace that isn’t dominated by a single censor.”).

94 ARIZONA STATE LAW JOURNAL [Ariz. St. L.J.

so that they’re wiping out competition, so they’re taking all the profits for

themselves... but also so that they don’t have that kind of political power.”^93

These figures are not outliers but are representative of a growing

antimonopoly philosophy among Democrats, liberals, and progressives.

Others have echoed the concerns expressed by Senators Klobuchar, Sanders,

and Warren. (Former) Representative (and current Minnesota Attorney

General) Keith Ellison and sitting Representative Ro Khanna established an

Antitrust Caucus and called for antitrust enforcers to look beyond just

consumer welfare. 94 Alexandria Ocasio-Cortez, the Democratic

representative for New York’s 14th Congressional district, has repeatedly

voiced concerns about the political might of large financial institutions.^95

Senator Cory Booker has lamented the “incredible concentration of economic

and political power in this country” 96 and introduced a bill that would

establish a moratorium on corporate mergers in agriculture. 97 Former

Colorado governor and former presidential candidate John Hickenlooper has

called for a major revival in antimonopoly enforcement.^98

Indeed, many Democrats have criticized the political power of banks since

at least the 2007–08 financial crisis. In early 2009, just six months after the

collapse of Lehman Brothers and the start of the worst financial crisis in

eighty years, Senator Richard Durbin famously observed that “the banks—

hard to believe in a time when we’re facing a banking crisis that many of the

  1. Alexandra Jaffe, Elizabeth Warren and Amy Klobuchar Both Agree on Breaking Up ‘Big Agriculture’ Monopolies , BUSINESS INSIDER (Mar. 30, 2019, 7:22 PM), https://www.businessinsider.com/warren-klobuchar-agree-on-breaking-up-big-ag- 2019 - 3 [https://perma.cc/V2DQ-33LN].
  2. Tess Townsend, Keith Ellison and the New ‘Antitrust Caucus’ Want To Know Exactly How Bad Mergers Have Been for the American Public , N.Y. MAG. (Dec. 4, 2017), http://nymag.com/selectall/2017/12/antitrust-bill-from-keith-ellison-seek-info-on-mergers.html [https://perma.cc/2A82-HJ9P].
  3. Alexandria Ocasio-Cortez, Curb Wall Street Gambling: Restore Glass Steagall , OCASIO2018.COM, https://ocasio2018.com/issues [https://perma.cc/NS6S-W8DJ].
  4. Open Market Inst., Remarks by Senator Cory Booker at “A Right to Compete: Are Monopolies Crushing Entrepreneurship?” , YOUTUBE (Oct. 12, 2018), https://www.youtube.com/watch?list=PLl7VSnPfVKIgkUpV_vGIcZrZAJETwdovs&v=kLR9tZ Qyk30&feature=emb_logo [https://perma.cc/XV9Z-Y59W].
  5. Press Release, Cory Booker, Booker Introduces Bill To Place Moratorium on Ag Mergers (Aug. 29, 2018), https://www.booker.senate.gov/?p=press_release&id= [https://perma.cc/N7U5-TZZ7].
  6. John Hickenlooper, John Hickenlooper: Leveling the Playing Field for Small Businesses , MEDIUM (Apr. 25, 2019), https://medium.com/@johnhickenlooper/john- hickenlooper-leveling-the-playing-field-for-small-businesses-467fd6c3ece [https://perma.cc/272J-LAJ2].