Analyzing Competition in the Low-Level Radioactive Waste (LLRW) Market
In one of the relatively rare instances in which an antitrust merger case has proceeded to trial, Delaware District Court Judge Sue Robinson ruled against EnergySolutions Inc.'s proposed $367 million acquisition of Waste Control Specialists. For the trial, the US Department of Justice (DOJ) retained Analysis Group's academic affiliate, Professor John Mayo of Georgetown University, to testify on the nature of competition in this specialized market and the competitive effects of the proposed merger.
Nuclear power plants generate LLRW in their operations and in the decommissioning process as plants age and are retired. Many of the nation's nuclear plants are expected to be mothballed over the next 25 years, and the amount of LLRW that needs to be disposed of is expected to increase substantially. On-site storage, transport, and disposal of LLRW require highly specialized equipment and expertise, and the process is closely regulated by the Nuclear Regulatory Commission (NRC).The DOJ successfully contested the merger of EnergySolutions, Inc. and Waste Control Specialists, two close competitors in the specialized business of LLRW transportation. The case, United States of America v. EnergySolutions, Inc. et al., was brought in November 2016 and decided in June 2017, following a two-week bench trial.
The DOJ argued at trial that the merger would unacceptably reduce competition in this market without delivering the financial benefits the companies were claiming. In the DOJ’s press release following the decision, Acting Assistant Attorney General Andrew Finch of the Antitrust Division commented, “[The] decision protects competition in an industry that is incredibly difficult to enter.”
For the trial, the DOJ retained Analysis Group academic affiliate Professor John Mayo of Georgetown University as its testifying expert. Throughout the case, Dr. Mayo was supported by a team of economists from the DOJ and from Analysis Group, including Managing Principal Christopher Borek, and Vice Presidents John Browning and Maria Garibotti.
"[The] decision protects competition in an industry that is incredibly difficult to enter."
- Acting Assistant Attorney General Andrew Finch of the Justice Department's Antitrust Division, Department of Justice Press Release
The case involved a dispute over the definition of relevant antitrust markets, with the unusual twist that the defendants claimed that the expert's defined relevant markets were too broad rather than too narrow. The defendants also introduced a unique argument, claiming that substantial unaccounted-for competition was present in the disposal of LLRW as a consequence of electric utilities’ ability to delay disposal by storing waste at the nuclear power plants generating the waste.
In order to analyze market definition, Dr. Mayo and the Analysis Group team first defined the relevant markets for the merging parties' products, which Dr. Mayo determined were differentiated goods by relying on natural boundaries between products. In this case, he determined a division between higher-activity and lower-activity LLWR as a reasonable boundary between different streams of waste, given that industry participants regularly use that distinction and EnergySolutions itself has used it in the past.
Dr. Mayo also reframed the defendants’ argument that the ability to store LLRW onsite – essentially shifting demand to later time periods – maintained competition in the market. Dr. Mayo pointed out that, in an economic context, this claim introduced the notion that competition may arise from inter-temporal substitutions by consumers. The team was then able to identify limits on the role of such inter-temporal substitutions in mitigating anticompetitive effects or altering the proposed market definition. Ultimately, as Dr. Mayo noted at trial, this creates a "pay me now or pay me later" scenario in which storage does not provide competitive protections, as alleged by the defendants.
In addition, Dr. Mayo was able to identify the anticompetitive harms associated with the loss of a competitor following a merger by relating them to the procompetitive consequences of the original entry of one of the merging firms into the market. This analysis wove together both quantitative evidence on pricing effects of the company's entry as well as qualitative evidence from company documents.
Through these analyses, Dr. Mayo found that the proposed transaction would substantially increase concentration in the relevant markets and would eliminate the close, head-to-head competition that has demonstrably benefited customers, including nuclear power plants. Delaware District Court Judge Sue Robinson agreed, ruling against the proposed $367 million acquisition. Shortly after the ruling, Valhi, Inc., the parent company of Waste Control Specialists, announced that it would not appeal the decision. ■