This chapter discusses the economics of mergers and traces the development of horizontal merger doctrine. A horizontal merger may yield efficiency gains by cutting production or marketing costs, and at the same time may reduce society's wealth to the extent that the merged entity sets price above the competitive level. An economic reasonableness standard would assess these welfare tradeoffs in determining whether a horizontal merger should be deemed anticompetitive. However, as we have seen in other areas of antitrust, a reasonableness test places heavy administrative burdens on enforcement agencies.

The tension between administrative and economic reasonableness concerns is particularly noticeable in the development of horizontal merger doctrine. After announcing a truncated reasonableness test in its 1962 Brown Shoe opinion, the Supreme Court moved away from it in subsequent decisions, toward a standard that put primary emphasis on market structure. This drift continued until 1974, when the Court signaled a return to the Brown Shoe standard in its General Dynamics decision.

REASONS FOR MERGING AND IMPLICATIONS FOR LAW

Why is antitrust law concerned about mergers? Two reasons appear in the literature. (1) Concentration, which may lead to tacit or explicit collusion. (2) Foreclosure; a forward vertical merger may foreclose retail outlets to other manufacturers, or a backward vertical merger may reduce the number of suppliers to a given manufacturer.

The concentration issue forces us to return to the conscious parallelism debate of Chapter 3.