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Michael Whinston provides expert testimony on behalf of DOJ in its successful challenge of proposed General Electric/Electrolux transaction
On December 7, 2015, General Electric withdrew plans to sell its major appliance business to Swedish rival AB Electrolux after four weeks of trial in which the U.S. Department of Justice (DOJ) challenged the deal.1 Bates White Partner and Massachusetts Institute of Technology Professor Michael Whinston provided expert testimony on behalf of DOJ, which claimed the $3.3 billion acquisition would diminish competition in markets for major cooking appliances and lead to price increases for consumers.
The parties announced the proposed transaction in September 2014. After several months of investigation, on July 1, 2015, DOJ filed a complaint seeking to block the acquisition. DOJ engaged Professor Whinston to provide expert analysis for the Antitrust Division’s case. Professor Whinston, supported by the Bates White team, analyzed extensive data and documents from the merging businesses, as well as from competitors and customers, prepared three expert reports, and testified at trial.
During his testimony, Professor Whinston opined that a merged GE-Electrolux entity would have a strong incentive to raise prices in markets for ranges, cooktops, and wall ovens. Professor Whinston’s analysis showed that GE and Electrolux produce more than half of the ranges sold in the U.S., and more than one third of cooktops and wall ovens. Furthermore, he testified that GE and Electrolux compete more directly with each other than with some other manufacturers. For example, rivals such as LG and Samsung do not generally offer products at low price points, for which GE, Electrolux, Kenmore, and Whirlpool comprise 97% or more of U.S. sales.
Professor Whinston further testified that new entry or product repositioning was unlikely to counteract the merged entity’s incentive to raise prices. The defendants argued that future growth by LG and Samsung would alleviate any competition concerns arising from this merger. Professor Whinston testified that while such growth of competitors was good for consumers, it would nevertheless be insufficient to neutralize the incentives Electrolux would have to raise prices if the acquisition of GE’s major appliance business were to be approved. He testified that the cost savings claimed by the defendants’ expert also were insufficient to prevent price effects.
The defendants’ expert claimed that Dr. Whinston’s predictions were unreliable, and presented in support of this argument an econometric study of the 2006 Maytag-Whirlpool merger, which purportedly offered a natural experiment showing no adverse effects on competition from that allegedly similar merger. Professor Whinston addressed this claim, testifying that the econometric analysis could not reliably assess the effects of the earlier merger for various reasons, but principally because any merger effects were confounded with effects from other changes in appliance markets that occurred simultaneously, including effects of the crash of the housing market, which started early in 2006.2
After General Electric announced it was abandoning the transaction, DOJ issued a press release in which a spokesman stated, “In the courtroom, facts matter. Rhetoric does not. This deal was bad for the millions of consumers who buy cooking appliances every year. Electrolux and General Electric could not overcome that reality at trial."3
1Electrolux North America Inc. is a wholly owned subsidiary of defendant AB Electrolux. Electrolux makes and sells major appliances under the brand names Frigidaire, Tappan and Electrolux. General Electric makes and sells major appliances under brand names GE Monogram, GE Café, GE Profile, GE, GE Artistry and Hotpoint.
2Read the trial materials, including Professor Whinston’s testimony, on DOJ’s website.
3United States Department of Justice, “Electrolux and General Electric Abandon Anticompetitive Appliance Transaction After Four-Week Trial,” news release, Dec. 7, 2015, available at http://www.justice.gov/opa/pr/electrolux-and-general-electric-abandon-anticompetitive-appliance-transaction-after-four-week.