Introduction
The 1982/4 ‘merger guidelines’ adopted by the Antitrust Division of the Department of Justice (DOJ) and followed by the Federal Trade Commission (FTC) marked important antitrust policy changes by the Reagan administration. The Herfindahl index replaced the four-firm ratios used in the old (1968) guidelines as the measure of concentration. Other non-concentration factors (barriers to entry, ease of collusion) were elevated in importance. In the 1984 revision of the 1982 guidelines, efficiency considerations were for the first time generally included as a relevant factor.
However, commentators who applauded the newer guidelines have complained subsequently that the Reagan administration did not apply them. The objections of two veteran academic anti-trusters, Krattenmaker and Pitofsky (1988, p. 232), are typical:
Certainly, in many respects, the announced merger guidelines are a substantial accomplishment. This accomplishment, however, has been almost completely undercut by the Administration's behaviour in ignoring those guidelines in practice and instead enforcing, without any public explanation, a merger policy that was not only exceptionally lenient but substantially at odds with professed standards.
In an earlier paper (Coate et al, 1990), we, along with co-author Richard Higgins, tested one hypothesis why merger policy (at least at the FTC in 1982–6) has departed from mere enforcement of the guidelines: politics.