During an antitrust investigation, we often hear that our concerns fail to account for disruptive forces that will soon emerge and shake up the competitive dynamic in the market in the near future—from an innovative newcomer or from the emergence of a completely new business model. I recently went to the Pacific Northwest, a hotbed of innovation and new ideas, to talk about the role of disruptive business models in U.S. antitrust analysis.
In a typical merger case, we are looking at whether a proposed transaction is likely to substantially reduce competition by eliminating one firm that already competes in a market. But because Section 7 of the Clayton Act is forward-looking, we always assess what is likely to happen to competition in the future, including if there are any firms planning to enter. Sometimes during our investigation, we discover that imminent entry will likely transform the market, as was the case when the Commission decided not to challenge Google’s merger with AdMob in the face of Apple’s entry into mobile advertising. And sometimes, even in the face of growing pressure from online retailers, we may determine that competition among existing brick-and-mortar stores is sufficient to prevent anticompetitive effects from a merger, with or without future disruption.
But not every claim of disruptive competition survives close scrutiny. For instance, in our recent litigation challenge to the merger of Sysco and US Foods, the parties claimed that a combined Sysco/US Foods would face growing competition from a disruptive business model called “cash and carry” outlets and club stores. The court dismissed this claim, noting that broadline distribution customers have distinct needs that could not be met by these other types of suppliers.
Sometimes, the development of new platforms or technology is at the heart of our competitive concerns. In cases like Verisk/EagleView and Nielsen/Arbitron, the merging parties were the two companies best positioned to develop and improve important new products, products that met their customers’ needs in new ways. But evidence related to disruptive products-in-development can be hard to pin down, as can be seen in the outcome to our recent litigation involving the Steris/Synergy merger. This a fact-dependent inquiry that invariably homes in on how far along the newcomer is with its plans to enter.
In conduct investigations, we may encounter collective action by incumbents to exclude new forms of competition. When competitors adopt a rule or policy through a trade association or licensing board that unreasonably restricts competition from disruptive newcomers without a legitimate business reason, we can take action. Examples include the Commission’s case against Realcomp for its policies to exclude listings by discount real estate brokers, and the North Carolina State Board of Dental Examiners for its attempts to exclude non-dentists from offering teeth whitening services.
Finally, as part of its advocacy initiatives, the Commission often urges policymakers to adopt a flexible regulatory approach that promotes innovation and can accommodate new business models. As a general rule, the Commission strongly believes that competition should only be restricted when clearly necessary to achieve some countervailing benefit such as protecting the public from significant harm. That principle should apply when considering new regulations, but it should also motivate policymakers to review existing restrictions on competition to ensure that they are still justified, especially in markets where new business models have emerged to challenge the status quo.