Some antitrust efforts are intended to squelch market power in its infancy. Strong antimerger policies were the rule during the 1960s and 1970s, but were relaxed in the 1980s. The Justice Department currently requires premerger notification by firms. This forces big firms to wait 30 to 50 days after notifying the government before consummating any merger. During the waiting period, the Department of Justice can evaluate the legality of proposed mergers, and it can immediately sue to block mergers it opposes. This approach helps avoid the mess often encountered in the dissolution of a company that has already been merged.
The Justice Department under the Reagan administration announced merger guidelines to improve the predictability of federal merger policy. After noting that numerical standards must be tempered by judgment, the Department categorized mergers according to (a) the level of the Herfindahl-Hirschman index in the industry and (b) the change in the index that would occur because of the merger. The Justice Department also considers such factors as (a) whether one of the merging firms is a dominant leader in the industry, (b) ease of entry into the market, and (c) ease and profitability of collusion.
Horizontal mergers that might have generated economies of scale or other benefits were once prevented by rigid enforcement of antimerger laws. More recently, the Department of Justice has taken the position that, "Although they sometimes harm competition, mergers generally play an important role in a free enterprise economy. They can penalize ineffective management and facilitate the efficient flow of investment capital and the redeployment of existing productive assets. While challenging competitively harmful mergers, the Department sought to avoid unnecessary interference with that larger universe of mergers that are either competitively beneficial or neutral."
But new high-tech industries and rapidly changing technologies are making old-style merger evaluation difficult. In the past, gauging a merger's competitive impact when, for example, two cigarette or appliance manufacturers merged, was relatively straightforward. Concentration ratios and Herfindahl calculations are decidedly more problematic when mergers involve developing technologies and emerging markets.