Music fans hate Ticketmaster. When they want concert tickets, Ticketmaster is always the one selling them, and tickets are expensive, with service charges that can double the price. Tickets are often sold out almost immediately, but are somehow available secondhand for over 50% more than the original price. Ticketmaster provides bad service at outrageous prices.

How is Ticketmaster able to frustrate and annoy consumers without anyone else coming into the market to compete with them? One technique is the corporate merger. In 2010, Ticketmaster, which already controlled 80% of ticketing, merged with Live Nation, the world’s largest operator of concert venues. With control over live music, Ticketmaster can get away with ripping off music fans and strong-arming venues, all because there is nowhere else to go. Now, Live Nation-Ticketmaster can retaliate against anyone who wants to use a different ticketing service.

It’s not just music. Years of bad merger policy have allowed companies to get bigger, more powerful, and worse for customers and workers. Over the last twenty years, 75% of industries have become more concentrated. Fortunately, policymakers have noticed. Today, there is a big policy fight in Washington about mergers that can change the direction of our economy. This primer explains what this policy fight is all about and why it matters.

FIRST, WHAT’S A MERGER?

A merger is when two companies combine into one company. Acquisitions are a kind of merger where one company buys another outright. There are lots of reasons companies merge. Companies might pursue mergers to grow by expanding their customer base or increasing their financial resources. However, companies might also pursue mergers to reduce competition, because the two companies would no longer need to compete for customers or employees by lowering prices, making a better product, or paying better wages.

WHY DO MERGERS MATTER?

While many companies grow by hiring more workers and investing to expand to new locations or sell new products, mergers are one of the main ways that companies get bigger—and the main way that they monopolize markets.

A merger often gives the combined company more bargaining power than either company had on its own. A merger can create a company big enough to bully its competitors, workers, or suppliers, and without any real competition, it can increase prices on consumers with no improvements to quality or service. So rules about mergers are really what decides how big and powerful companies can become.

ARE THERE A LOT OF MERGERS TODAY?

Yes. Merger activity reached an all-time high of $5.8 trillion in 2021, with private equity—a specialized type of fund that focuses on mergers—spending more than $1 trillion on deals over the course of the year, up 110% compared to 2020. Banks announced a larger total deal value in mergers and acquisitions in the first half of 2021 than in all of 2020. Mark Sorrell, Goldman Sachs’ co-head of global mergers and acquisitions, explained: “Folks across the spectrum, whether that be technology, consumer industries, healthcare, all came out and said, ‘I’m going to make moves now.’”

WHAT ARE THE LAWS AND RULES AROUND MERGERS?

The main law on mergers is the Clayton Act, which prohibits any merger that might reduce competition or create a monopoly. The Department of Justice (DOJ) and Federal Trade Commission (FTC) are responsible for deciding whether a merger is legal. If the DOJ or FTC believes that a merger is illegal, they can take the companies to court to block the merger.

How do the DOJ and the FTC know whether a merger is illegal? The Department of Justice and Federal Trade Commission maintain a set of “merger guidelines” that explain which mergers they will block. Despite how important they are for the economy, the merger guidelines are a complicated, technical document that usually gets very little attention. 

The first guidelines were written in 1968, but in the early 1980s they were rewritten to encourage mergers rather than to block them. That is why we now have companies like Live Nation, T-Mobile, Disney, and AT&T, among many others, that went through many mergers to become the giants they are now.

WHAT ARE SOME EXAMPLES OF HIGH-PROFILE MERGERS?

Recent years have seen many disastrous mergers:

• Airlines: One of the reasons airlines provide bad service is because of a series of mergers between 2008 and 2013. Delta and Northwest merged in 2008, United and Continental merged in 2010, and American Airlines and US Airways merged in 2013. Now there are only four main airlines, and many routes are served by one or two airlines.
• T-Mobile/Sprint: In 2019, T-Mobile acquired Sprint, so now there are only three main cellular companies. As a result, consumers have fewer choices, and T-Mobile is closing up to 1,500 stores, with losses of up to 30,000 jobs.
• Disney/Fox: In 2019, the media conglomerate Disney acquired mass media company 21st Century Fox. Following the merger, Disney laid off thousands of employees and is closing production on a number of television and movie projects.
• Hertz/Dollar Thrifty: In 2013, Hertz, the second-largest car rental company, acquired Dollar Thrifty, the fourth-largest. Three companies control almost all car rentals, charging high prices and offering bad service. In one famous example, Hertz even has a track record of having their own customers arrested on false reports of theft.
• Google/DoubleClick: Google controls 90% of search advertising and a third of all online digital advertising, starving newspapers and publishers all over the world. Google’s power is a result of hundreds of acquisitions over the course of two decades. The key acquisition was DoubleClick in 2007, which combined the leading search engine with the leading advertising software company. Today, there are five government suits against Google for monopolizing aspects of internet search and key infrastructure.

WHAT ARE THE CONSEQUENCES OF TOO MANY MERGERS?

Successive waves of mergers have led to many problems:

• Higher prices for consumers: When companies merge in concentrated markets, there is an average price increase of 7%. Mergers and concentration also contributed to this year’s price increases.
• Layoffs and lower wages: Mergers often result in layoffs, as the merged company seeks to cut costs or eliminates redundant positions.
• Fewer startups: When just a few companies have used mergers to concentrate an industry, they will threaten new entrants, resulting in fewer startups.
• Low investment: The American economy relies on investment in new technology, new products, and better customer service. Without competition to pressure them, industries that have consolidated through mergers don’t invest much.

ARE ALL MERGERS BAD? WHAT IF THAT’S AN ENTREPRENEUR’S BEST PATH TO GROWTH?

Not all mergers are bad. Sometimes a business owner wants to retire and sell his or her firm, or a firm is on the verge of bankruptcy and needs to sell out. And some entrepreneurs with new ideas sometimes can’t expand other than by merging with another company that has the ability to scale up. But many mergers are done to eliminate competitors, consolidate markets, or provide high fees to the Wall Street bankers who help engineer them. The easy way to tell whether a merger is problematic is through size. If a firm is already large, it probably shouldn’t be allowed to merge with or acquire other firms.

SO WHAT IS THE GOVERNMENT TRYING TO DO NOW?

This brings us to the big policy fight this year. The FTC and DOJ requested public feedback and comment to revise the merger guidelines. With new leadership at the FTC and DOJ, and a Biden administration committed to a fair economy, there is a key opportunity to undo a generation of bad merger policy. New guidelines can set clear rules to prohibit giant mergers. The FTC and DOJ could undo bad mergers, like they are attempting now with Facebook, taking the company to court to undo its illegal acquisitions of Instagram and WhatsApp.

There is overwhelming public support for this. In 2010, when the DOJ and FTC last revised the guidelines to make minor changes, there were 32 comments in total, and almost all were from representatives of big business. This year, with renewed public support for reining in corporate power, the agencies received over 5,800 comments, mostly from average citizens concerned about, for example, how corporate mergers have ruined their favorite product, made their local hospital worse, or resulted in them being laid off. Our merger comment follows.