The antitrust division of the Department of Justice has become an economic regulator of mergers. That such a change has reached its high point during the Reagan administration was predictable considering the administration' s outspoken policy of engaging in dispute resolution without litigation.
The trend toward economic analysis and regulation of mergers began in the mid-1960s, though the antitrust division viewed itself as a litigating agency through the 1960s. Indeed, the first merger guidelines were issued in 1968. They represented the first formal policy shift in establishing standards through which the antitrust division reinterpreted its enforcement prerogatives and regulated mergers.Throughout the 1970s, efficiency defenses to antitrust were introduced and considered by the division. The Hart-Scott-Rodino Act was passed in 1976, giving the division greater supervision of mergers through disclosure requirements. In 1982 and 1984, the merger guidelines were reformulated, resulting in merger standards that made challenges to proposed mergers more difficult than the Supreme Court cases suggested.
In practice, the guidelines serve, together with disclosure requirements, as preclearance screening devices. The division either:
* Gives a quasi-license to the proposed merger through interpretation of the standards and negotiation with the parties.
* Or discourages the merger so the proposal fades away without a contest on the merits.
Public policy is well served if means can be found for reducing the costs of resolving merger disputes. Cost reductions can benefit the public resources of courts and the antitrust division, and resources of the merging parties. Containment of litigation costs must be a high priority.
This is particularly true for public enforcement agencies, which, in times of budget restrictions, have to allocate scarce resources efficiently. In antitrust litigation, the Supreme Court has cautioned that efficiency is an important policy rationale, and one that will be enforced.
The central question then is whether the current preclearance procedure is a more efficient way to resolve merger issues than traditional litigation. If so, it is in the public interest to continue the antitrust division's posture toward merger regulation.
It is well-known that the costs of litigation create incentives for the parties and the government to find ways to minimize costs. Alternative means of dispute resolution have increased in importance in reaction to the high costs of litigation. The result is that conflicts are resolved today mainly through alternative means that achieve settlement before full trial. Antitrust litigation is no exception to this trend.
In a recent study on private antitrust litigation, the data showed that settlement was reached before trial in 88 percent of the field antitrust cases surveyed. Many other antitrust issues were settled before suit was even commenced. Conflict resolution was achieved because the parties knew that litigation is not costless and that outcomes are not perfectly predictable.
For most disputes, the efficient resolution is not the litigated one. Trade-offs result that require the parties and government policy-makers to achieve an optimal level of enforcement, one that minimizes costs while maximizing enforcement objectives.
Even if one were to assume that the government's enforcement budget was fixed in real terms, an increase in litigation costs per case yields a decrease in the number of cases that could be brought for adjudication. Consequently, the probability of enforcement decreases and, accordingly, the probability of Clayton Act Section 7 violations increases. The same holds true if the enforcement budget is decreased.
Although alternative dispute resolution procedures are a current trend, they have existed as long as civilization. They take many forms but essentially include the use of extra-judicial processes, such as negotiations, mediation, arbitration and settlement. In selecting the most effective method of resolution, one needs to consider the general enforcement goals of certainty and clarity of the law, deterrence, resource allocation, case management, justice and legitimacy.
The antitrust division's resolution methods achieve many of the principles recognized by these enforcement goals; they also satisfy the underlying arguments favoring alternative dispute resolution. Economic efficiency is the first priority in case management and resource allocation.
When we consider the antitrust division's process in reaction to a proposed merger - standard-setting (guidelines), disclosure requirements, preclearance screening, negotiation, merger restructure and consent orders - we see an impressive promptness by government officials.
The entire resolution process is substantially shorter, with fewer resources expended, than in traditional, protracted litigation. The relative speed at which the system operates reduces the process costs of each proposed merger and consequently reduces costs for all proposed mergers.
Public confidence in the process is increased as delay is minimized. Court dockets are freed for other important matters, including those few merger cases that cannot be settled. The legitimacy of the system is increased as a result. As legitimacy is maintained, deterrence from the prohibited conduct is encouraged.
Deterrence also is fostered by the relative clarity of the merger law as set forth in the guidelines, compared with the case law ambiguities. To the extent that legal standards are clear, enforced promptly and backed by adequate deterrence, the efficiency or utility of law is maximized. Efficiency is an important component of any justice-distributing system.
In short, the antitrust division's "regulatory judgement" is unquestionably more prompt, less costly, and more efficient than full-blown adjudicatory proceedings. The pre- screening clearance process is appropriately suited for review of proposed mergers. It avoids the attendant costs of litigation for the merging parties, the antitrust division and the courts.
From a policy standpoint, the current review process is in most cases a more effective means of resolving merger issues. In this context, the goals of efficiency, justice and legitimacy need not compete; they each can be pursued simultaneously. Efficiency need not dimin ish the quantity of the justice or the legitimacy of the process.