- The federal government will look at an acquiring company's contracting practices to see if a proposed merger would lower prices for consumers, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) said in antitrust guidelines issued jointly last week.
- The guidelines apply to mergers between companies competing in the same market, known as vertical mergers, and include guidance on assessing harms from diagonal mergers — those that combine firms or assets at different stages of competing supply chains — and mergers of complements.
- The rules leave out a guideline in the proposed version that would have given a pass to companies whose combined market share in the vertical would be 20% or less.
The guidelines give business executives a window into how a proposed merger would be viewed by the antitrust divisions in the two agencies.
"These new Vertical Merger Guidelines are an important step forward in maintaining vigorous antitrust enforcement, and reaffirm our commitment to challenge vertical mergers that are anticompetitive and would harm American consumers," FTC Chairman Joe Simons said.
The guidelines detail the techniques and main types of evidence the agencies use to predict whether vertical mergers will substantially lessen competition.
"They identify harm that may arise from full or partial foreclosure, through input foreclosure, customer foreclosure, and enhanced bargaining leverage that may result from a merger," Simons and FTC Commissioners Noah Phillips and Christine Wilson said in a statement.
Opposing the action, Commissioner Rohit Chopra warned the guidelines don’t directly address the many ways that vertical transactions may suppress new entry or otherwise present barriers to entry and make assumptions based on contested and economic theories and ideology rather than historical, real-world facts and empirical data in line with modern market realities.
He contended they support the status-quo ideological belief that vertical mergers are presumptively benign, and even beneficial.
“Immeasurable innovation has been lost because the government stopped preventing dominance from blocking disruption,” Chopra, who served as Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB) under Obama, said.
Double marginization, 20% screen
On a key point, the guideline recommends analysts look at a company's contracting practices to see if consumers would benefit from a merger through the elimination of what is known as double marginization.
"The merging parties' evidence about existing contracting practices is often the best evidence of the price the downstream firm would likely pay for inputs absent the merger," the guideline says.
In dropping the use of 20% as a market share threshold, the guidelines are silent on any type of safe harbor that would constitute an okay merger.
"The agencies removed this provision following widespread criticism," a Gibson Dunn analysis said. "Now, the Guidelines state that, though levels of concentration may be relevant to assessing a deal’s competitive effects, the agencies will not rely exclusively on market shares or concentration statistics as screens for competitive harm."