Unpacking the Remedy: The Hidden Costs of Merger Remedies and the Economist's Role in Getting Them Right

This article was originally published by Competition Policy International here. The views expressed in this paper are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Introduction

As with any settlement of a dispute to avoid litigation, remedies can provide an efficient way of resolving potential competitive concerns raised by a merger while allowing aspects of the merger that do not raise competitive concerns to proceed. Remedies are often thought of as a middle ground, balancing the interests of the merging firms and the objectives of competition policy. Remedies typically involve a compromise that allows transactions that would otherwise be litigated or abandoned to proceed conditional on divesting certain business units or making commitments on future behavior to resolve the competitive concerns.

Remedies of all forms come with potential costs. For the merging firms, remedies may undermine the business logic for the transaction by, for example, reducing the synergies which would have been created. More broadly, remedies may fail to fix the original competition concerns because, for example, the antitrust enforcement agency may have failed to understand fully the competitive harms of a transaction, or the buyer of divested assets was unable to operate them effectively.

Developing an effective and acceptable remedy is particularly relevant given the increase in the number of large-scale mergers, which more often attract antitrust scrutiny, as well as research indicating that remedies have not been as effective as they were intended to be in some cases. In recent years antitrust authorities in the UK, Europe and United States have all published retrospective analyses of merger remedies, as have private entities such as Global Competition Review. These studies concluded that, while remedies on the whole and as a general matter have become more effective in recent years, there continue to be instances where the remedy did not perform as intended.

During the Biden administration, competition authorities in the United States rarely used remedies to resolve competitive concerns in merger cases, however, during the second Trump administration, remedies appear to be viewed as an important tool to resolve such concerns. Although the use of remedies has fluctuated across administrations to some extent, they are and will remain a vital tool in the merger review process for competition authorities in the U.S. and around the world. In this article, we discuss the importance of understanding the potential costs associated with remedies before they are implemented. Without this understanding, it is all too easy for remedies to be either unnecessarily aggressive, thereby reducing the benefits from transactions, or insufficiently aggressive, thereby undermining competition more broadly. Economists can play an important role in identifying and estimating the costs associated with proposed remedies and assisting in remedy design to help mitigate the potential associated costs.