Journal of Competition Law and Economics Advance Access originally published online on August 4, 2007
Journal of Competition Law and Economics 2007 3(4):551-607; doi:10.1093/joclec/nhm014
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THE CUSTOMER IS SOMETIMES RIGHT: THE ROLE OF CUSTOMER VIEWS IN MERGER INVESTIGATIONS
Antitrust enforcement officials and practitioners generally agree that customers should have a prominent role in the merger review process. The question of the appropriate level of reliance that competition authorities and courts should give to customer testimony has been the subject of considerable debate since the Arch Coal and Oracle decisions. This paper contains a comprehensive discussion of the use of customer testimony throughout the U.S. merger review process, from the initial merger notification filing to injunction proceedings in federal court. We discuss the benefits from and problems with the use of customer testimony, including how these problems have led to litigation losses for the U.S. antitrust authorities. What is the appropriate role of customer testimony and when is it most probative? We contend that customers can provide investigators and judges with information regarding several relevant issues in an acquisition, including industry structure, geographic and product demand substitution, and acceptance of potential market entrants. In contrast, customers will have considerably less information relevant to the likelihood of entry, the extent of any merger-specific efficiencies, and the validity of a failing firm defense. They will almost never be qualified to offer legal conclusions, such as the proper market definition or likely competitive effects of a proposed merger. We conclude that courts have generally remained consistent in their reliance on customer testimony, including in the Arch Coal and Oracle cases, and that customer testimony, despite its limitations, should and will continue to be important at each stage of the merger review process.
* Counsel, O'Melveny & Myers LLP, Washington, D.C. E-mail: dtucker{at}omm.com.
** Counsel, O'Melveny & Myers LLP, Washington, D.C. E-mail: sreiter{at}omm.com.
Counsel, O'Melveny & Myers LLP, Washington, D.C. E-mail: kyingling{at}omm.com. Darren S. Tucker and Scott L. Reiter litigated the Arch Coal case discussed in this article—Reiter for the FTC and Tucker for defendant Triton Coal. Kevin L. Yingling litigated the SunGard case discussed in this article for the Antitrust Division. The authors express no views as to the factual or legal findings in the Arch Coal and SunGard opinions. The authors thank Maryann P. Surrick and Andrew J. Trask for their drafting assistance and Michael Knight, Michael Franchak, and Eric Edmondson for their helpful comments.