The Status and Viability of the Efficiencies Defense in Antitrust Law

by Isaac Weingram  1

The “efficiencies” or “economies” defense provides a vehicle for merging companies to contest allegations that a merger will result in anticompetitive effects, which will harm the market and consumers. 2 The principal concern of courts with mergers is that increases in market concentration will allow businesses to use their market power to restrict output and increase prices. 3 An economies defense would allow firms to show that the merger would not have these negative effects. Instead, firms would have the opportunity to show that a merger would allow the companies to reduce production costs or provide consumers with new goods and services through innovation. 4

Successfully employing the defense requires companies to show that reductions in production costs or gains in innovation from a merger will ultimately benefit consumers in the form of lower prices or higher quality goods and services. 5 However, the extent to which courts accept the defense, in addition to its overall workability, remains in doubt. 6 This article discusses each of these issues in turn. First, I examine how courts currently view the efficiencies defense. Second, I look at whether the efficiencies defense can be operationalized. Ultimately, I will argue that because of the significant obstacles associated with evaluating the efficiencies defense, the circuit courts have been wise to create impediments for companies seeking to justify mergers in highly concentrated markets based on purported efficiencies.


The availability of an efficiencies defense in antitrust law has been in considerable doubt since the Supreme Court’s ruling in Federal Trade Commission v. Procter & Gamble Co. 7 In Procter, the Supreme Court explicitly stated that “[possible] economies cannot be used as a defense to illegality.” 8 However, the rejection of the efficiencies defense was not central to the Court’s holding, and in his concurring opinion, Justice Harlan forcefully argued that efficiencies should be considered in the merger context. 9 Since the ruling in Procter, the Supreme Court has not revisited the efficiencies defense. Recognizing the ambiguity of the precedent in Procter, the Eleventh Circuit opened the door to the efficiencies defense in Federal Trade Commission v. University Health, Inc. 10 Four other circuits—the Sixth, the Eighth, the Ninth, and the D.C. Circuits—have followed suit, with the Ninth Circuit being the most recent addition. 11 The Ninth Circuit’s decision to consider an efficiencies defense is particularly striking because the circuit had rejected such a defense nearly three decades prior. 12

However, the reversal of the Ninth Circuit and the adoption of the efficiencies defense by several other circuits obscure the true status of the defense. Nearly all the cases in which the circuit courts have recognized the possibility of the efficiencies defense—H.J. Heinz being the notable exception—have involved healthcare mergers. 13 More importantly, none of the circuit court cases that claim to recognize the efficiencies defense have credited a defendant for successfully deploying it. 14 Even in the circuits where it is accepted, the existence of the defense may therefore be more theoretical than practical.

The demanding standards of the defense may explain why it faces so many practical limitations, and therefore, why it is so challenging to employ. First, the efficiencies defense requires a defendant to show that the efficiency gains are merger-specific, such that the identified gains were achievable only through the merger. 15 The reason for this restriction is clear: if the market can achieve the increased efficiencies without a decrease in competition, then there is no reason to sanction the merger. 16

Second, a successful efficiencies defense requires that the defendant show that the claimed efficiency gains are not mere speculation. 17While this restriction may make considerable sense, it is also one of the most restrictive. Innovation efficiencies produce the greatest benefits for the market and consumers, 18 but those efficiency gains are often the most difficult to measure and most speculative. 19 This restriction may forestall companies from presenting evidence about those gains most likely to produce a favorable result for them, both in court and for consumers in the long term. Practically speaking, the restriction is even more onerous, as courts have recognized that the evidentiary showing will vary with the degree of market concentration. 20There is good reason for courts to be more cautious in highly concentrated markets, since mergers in already concentrated markets raise the specter of collusion—tacit or otherwise—among competitors. 21 However, the trend of increased judicial scrutiny and analysis raises questions about the actual availability of the efficiencies defense in situations where it would be most useful.

Finally, and most importantly, the efficiencies defense requires proof that the gains will be passed on to consumers. 22 This restriction is imposed to maintain the focus of the court’s analysis on the protection of consumer welfare. To allow courts to merely weigh the efficiency gains of a merger against harm to consumers would unmoor antitrust law from its purpose of promoting consumer welfare. 23 While this may be a necessary restriction on the efficiencies defense, courts have inconsistently defined the timing and the extent to which the efficiencies must be passed on to consumers. 24 The ambiguity of this restriction compounds the difficulties of employing an efficiencies defense to rebut allegations that a merger is anticompetitive.

Because of the high bar imposed by these caveats, the efficiencies defense remains more of a theoretical construct than a practical option for defendants in merger cases. Several circuits may have embraced an efficiencies defense on its face, but in practice those circuits do not recognize its validity. 25The weakness of the defense is compounded by the Supreme Court’s nearly fifty-year silence on the issue. When the Court last spoke on the issue, it left considerable ambiguity that has plagued the lower courts. 26 Given this context of uncertainty, the availability of the efficiencies defense is extremely suspect. However, the relegation of the defense to a theoretical construct may not be problematic given the significant difficulty that courts face when evaluating the defense.


Even if courts are willing to adopt an efficiencies defense, there remain questions about the ability of courts to successfully evaluate the defense. Concerns about the capacity of courts to operationalize the defense have animated the discourse since its proposal in the late 1960s. 27 The courts that have adopted the defense have also noted these issues and their own skepticism about their ability to assess the defense. 28

Two major concerns exist about the viability of the economies defense. First, there is the issue of whether courts can actually perform the welfare analysis necessary to determine whether there is a net gain to consumers. 29 Second, and perhaps more importantly, there is a concern about informational asymmetries between those trying to enforce antitrust laws—in most cases, the government—and the companies that are seeking to merge. 30 These significant limitations on the ability of courts to adequately evaluate the defense provide a justification for the stringent standards that courts have adopted.

A welfare analysis in the merger context is the assessment of how a particular policy will affect the overall wealth in a given market. 31 Most scholars, in assessing the welfare effects of mergers, have relied on the “naïve tradeoff model” proposed by the economist Oliver Williamson, 32 who purposely selected the seemingly pejorative name to emphasize the number of limiting assumptions necessary for the model. 33 As with all models, the naïve tradeoff model is useful in illustrating some points, but not others. More specifically, there are significant concerns about using the model as a tool in specific cases, as opposed to the heuristic that is was designed to be. 34 To effectively employ the model in a given merger case, the court would need to be able to compute both the demand and the supply curves for that market. 35Not only are these computations outside the ken of courts, they are also unknown to the actual market participants. 36

The inability of courts to accurately perform welfare analysis for a given merger is compounded by information asymmetry concerns. Even if courts felt capable of making factual determinations about the welfare effects of a given merger, they and the government would be handicapped in merger proceedings by their lack of information about potential efficiency gains. 37 Defendants hold nearly all of the data about potential efficiency gains—the party challenging the merger would, therefore, be at the mercy of the defendants. Defendants employing an efficiencies defense would face a number of advantages, chief among those would be the ability to selectively disclose information to portray the efficiency gains in a light most favorable to the merger. The hypothetical nature of all efficiency gains further complicates this issue. 38 Williamson himself conceded that the adversarial process of the courtroom would do nothing to ameliorate the information asymmetry problems. 39 The inability of courts to accurately assess the potential efficiencies, or worse, to assess them in a biased manner because of poor information, represents a severe limitation to the viability of the efficiencies defense. Courts are wise to proceed with caution in accepting an efficiencies defense when faced with problems of information asymmetry. A less judicious approach would likely lead to the approval of mergers that have substantial anticompetitive effects, despite the ostensible efficiencies claimed by the merging firms.

While some courts have begun to take steps towards recognizing an efficiencies defense in the merger context, in practice the door is still largely closed for defendants. Severe practical limitations to implementing a true efficiencies defense caution against providing such a shield to defendants. In particular, courts are unlikely to be able to accurately calculate and evaluate the efficiency gains that defendants are purporting. These limitations warrant the high barriers that courts have erected for defendants attempting to employ an efficiencies defense.


  1. This Contribution stems from my experience in the 2016 Global Antitrust Institute Invitational moot court competition. One of the questions presented, as part of the competition, was whether U.S. antitrust law should move to a total welfare standard. As a part of that discussion, I explored the efficiencies defense to see if it represented a movement toward a total welfare standard. While I concluded that the efficiencies defense preserves the current consumer welfare standard, I also noticed several weaknesses in the efficiencies defense, which are discussed above.
  2. See Oliver E. Williamson, Economies as an Antitrust Defense Revisited, 125 U. Pa. L. Rev. 699 (1977).
  3. See e.g., Hosp. Corp. of Am. v. Fed. Trade Comm’n, 807 F.2d 1381, 1386 (7th Cir. 1986) (explaining the concerns about coordination among market participants as result of increased market concentration).
  4. See Williamson, supra note 2, at 699.
  5. See Fed. Trade Comm’n v. Univ. Health, Inc., 938 F.2d 1206, 1223 (11th Cir. 1991).
  6. See Saint Alphonsus Med. Ctr-Nampa, Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 790 (9th Cir. 2015) (discussing the adoption of an efficiencies defense by other circuits and the Court’s skepticism of the defense).
  7. 386 U.S. 568, 580 (1967); see also Saint Alphonsus, 778 F.3d at 789.
  8. Procter, 386 U.S. at 580
  9. Id. at 597–98. (Harlan J., concurring).
  10. 938 F.2d 1206, 1223 (11th Cir. 1991).
  11. See Saint Alphonsus, 778 F.3d at 789; see also ProMedica Health Sys., Inc. v. Fed. Trade Comm’n, 749 F.3d 559, 571 (6th Cir. 2014); Fed. Trade Comm’n v. H.J. Heinz Co., 246 F.3d 708, 720 (D.C. Cir. 2001); Fed. Trade Comm’n v. Tenet Health Care Corp., 186 F.3d 1045, 1054–55 (8th Cir. 1999); Univ. Health, Inc., 938 F.2d at 1223.
  12. See Saint Alphonsus, 778 F.3d at 789 (citing RSR Corp. v. Fed. Trade Comm’n, 602 F.2d 1317, 1325 (9th Cir. 1979)).
  13. Compare Saint Alphonsus, 778 F.3d 775 (discussing the merger of healthcare system in Idaho), ProMedica Health, 749 F.3d 559 (involving the merger of health systems in Ohio), Tenet Health, 186 F.3d 1045 (upholding an a preliminary injunction of the merger two hospitals in Missouri), and Univ. Health, 938 F.2d 1206 (reversing and granting a preliminary injunction of the acquisition of a hospital by a rival health system), with H.J. Heinz, 246 F.3d 708 (involving a merger in the baby food industry). See generally Hosp. Corp., 807 F.2d at 1388 (discussing unique features of the market for medical services).
  14. See Saint Alphonsus, 778 F.3d at 789.
  15. See H.J. Heinz, 246 F.3d at 722.
  16. See id.
  17. See id. at 721.
  18. See Joseph F. Brodley, The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and Technological Progress, 62 N.Y.U. L. Rev. 1020, 1026 (1987).
  19. See id. at 1028; see also H.J. Heinz, 246 F.3d at 722.
  20. See H.J. Heinz, 246 F.3d at 720.
  21. See Hosp. Corp. of Am. v. Fed. Trade Comm’n, 807 F.2d 1381, 1386 (7th Cir. 1986) (arguing that, in evaluating claims under section 7 of the Clayton Act, courts are making a judgment call about the probability of collusion).
  22. See Univ. Health, Inc., 938 F.2d at 1223.
  23. See Brodley, supra note 18, at 1033–35.
  24. See Saint Alphonsus, 778 F.3d at 789 (“[E]ven in those circuits that recognize it, the parameters of the defense remain imprecise.”).
  25. See id.
  26. See e.g., Fed. Trade Comm’n v. Staples, Inc., 970 F. Supp. 1066, 1088 (D.D.C. 1997) (“There has been great disagreement regarding the meaning of [the Procter] precedent and whether an efficiencies defense is permitted.”). 
  27. Compare Robert H. Bork, The Antitrust Paradox, 125 (1978) (arguing against an efficiencies defence because conducting welfare analysis on a case-by-case basis is impossible), with Oliver E. Williamson, supra note 2, at 699 (arguing for antitrust law to adopt an efficiencies defense despite its limitations).
  28. See e.g., Saint Alphonsus, 778 F.3d at 790 (“We remain skeptical about the efficiencies defense in general and about its scope in particular. It is difficult enough in § 7 cases to predict whether a merger will have future anticompetitive effects without also adding to the judicial balance a prediction of future efficiencies.”); cf. Univ. Health, 938 F.2d at 1223 (“[I]t is difficult to calculate the anticompetitive costs of an acquisition against which to compare the gains realized through greater efficiency; such a comparison is necessary, though, to evaluate the acquisition’s total competitive effect.”).
  29. See Bork, supra note 27, at 125.
  30. See Williamson, supra note 2, at 701.
  31. See id. at 700.
  32. See Herbert Hovenkamp, Implementing Antitrust’s Welfare Goals, 81 Fordham L. Rev. 2471, 2477–78 (2013); see also Bork, supra note 27, at 107.
  33. See Williamson, supra note 2, at 701.
  34. See Bork, supra note 27, at 125.
  35. See id.
  36. See id. at 126.
  37. See Williamson, supra note 2, at 703 (“Although the government and the defendant have roughly equal access to market share statistics, and can present, interpret, and contest such data equally well, the same is not true with respect to a purported economies defense. Here, the data are distributed unevenly to the strategic advantage of the defendant . . . ”).
  38. See Univ. Health, 938 F.2d at 1223.
  39. See Williamson, supra note 2, at 703 (“[T]he advocacy process is poorly suited for purposes of getting a balanced presentation of the evidence before the court.”).