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Disclaimer: I'm a programmer/electrical engineer and therefore a complete novice to law.

My question is: how can mergers of direct competitors, each already having a dominant market oligopoly, be legal?

The trend in the electronic industry the recent years has been that two huge, multi-national companies that are each other's direct competitors, with little or no other competition, have merged into one. Some notable examples:

  • Infinion acquires International Rectifier. Both companies specialized in advanced MOSFET circuits with barely any other competitors existing in the whole world. They now have close to monopoly on these kind of circuits. You find these circuits in every modern car.

  • Microchip acquires Atmel. Both companies were direct and fierce competitors in the market of cheap, small microcontrollers. They were the only two companies in the world that profiled themselves as having beginner-friendly, easy to use microcontrollers and so they have been competing over the very same kind of customers for the past 30 years or so. There is barely any competition left at all on that market now.

  • NXP acquires Freescale. The companies had many overlaps and were competitors in many areas, particularly in microcontrollers and automotive electronics. These two companies branched out from Phillips and Motorola respectively, roughly at the same time, some 15 years ago. Since then they had the same owners. NXP now got a different owner Qualcomm, at the same time as the merger. Qualcomm being another of these huge companies, but with a focus on telecom electronics, where they in turn have close to monopoly. So essentially this is 3 companies merging into 1.

There are many more examples. ON Semi acquires Fairchild, Analog Devices acquires Linear Technology and so on. All in the past 1-2 years. It is the same story over and over, two huge multi-national companies that are direct competitors, with little or no other competition, merge into one. Imagine Microsoft and Google merging and you get the idea.

The nature of their products - advanced electronic components - is such that barely anyone can start up a competing company, as they would need to do massive investments in R&D, head-hunt all staff from the existing companies and possibly also make massive investments in production lines. Because of this steep threshold to enter the market, there has traditionally only been around 20 companies like this in the world, making 99% of the world's advanced electronic components.

I take it that these mergers must have been approved by authorities in USA and Europe etc. Are there no laws regulating this? If there are, how do these companies manage to repeatedly dodge such laws world-wide?

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    At the conceptual and theoretical level, the main issue is how you define a "market" which turns out to be something that is open to wide manipulation, some of which is legitimate and some of which is sophistry.
    – ohwilleke
    Commented Jun 12, 2018 at 16:21
  • Do you have the same legal and regulatory question for the case of a single private equity concern acquiring controlling stake in each of the respective competing companies?
    – guest271314
    Commented Jun 12, 2018 at 23:15
  • @guest271314 In the case of NXP and Freescale, it was indeed a single private equity purchasing both companies, although they were kept separate and competing until the merger and sale of the merged company.
    – Lundin
    Commented Jun 13, 2018 at 6:41
  • This is too deep a subject for the SE format, in my opinion. 1. The law doesn't stop crime. The US is presently mired with myriad anti-trust violators. 2. Grand juries could indict the business owners, but grand juries are generally controlled (illegally) by prosecutors. 3. Prosecutors are often controlled. 4. Legislators aren't sent on all-expenses-paid vacations for no reason. Loopholes become law, thanks to them. The short of it is, if nobody is indicted, nobody's getting nailed for the crime, even if the crime is obvious and seemingly undeniable.
    – benJephunneh
    Commented Feb 27 at 21:27

1 Answer 1

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There are no laws directly regulating merger of two companies. Instead, there are laws against "monopolizing" (and similar expressions). In the US, the Sherman Act, the Clayton Act and the FTC Act providing the legal underpinning for the Department of Justice to prosecute a merger, or for a judge to prohibit a merger. The typical logical flow is that it is illegal to unfairly reduce competition, which might mean lowering prices when you have a substantial share of the market, privately agreeing on technical innovations with a competitor, or simply gaining a substantial share of the market via a merger.

Section 7 of the Clayton Act (also Sect 1 and 2 of the Sherman Act, Sect. 5 of the FTC Act) forbid a merger or acquisition when the effect would be "substantially to lessen competition, or to tend to create a monopoly". The US government has issued guidelines that gives ballpark suggestions about that they would be looking for in deciding is a merger is forbidden. The Hart–Scott–Rodino Antitrust Improvements Act provides the legal framework for federal review where the government approves vs. blocks an acquisition action (you have to file paperwork so they know that you intend a potential violation of anti-trust law). There are thresholds involving how big the cmopanies are and whethr4e they affect US commerce. This blurb outlines the review process.

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    "There are no laws directly regulating merger of two companies." You mean to say that there are no anti-trust laws directly prohibiting the merger of two companies. There are, of course, lots of corporate tax laws, securities laws, and state corporate organization laws that regulate the merger of two companies. HSR by requiring notice, pretty much is direct regulation of mergers too. And, there are industry specific regulations of mergers, e.g., by the FCC for TV and radio stations, and in liquor laws at the state level.
    – ohwilleke
    Commented Jun 12, 2018 at 16:18
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    This Clayton Act came up when I tried to do some research of my own and from what I could tell as a novice, it seems to speak directly against all these mergers. Yet it didn't prevent them, even though many of these companies are based in the US.
    – Lundin
    Commented Jun 12, 2018 at 17:39

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