District of Columbia
Evaluating the competitive effects of corporate acquisitions and mergers
The Commission is to be commended for raising the 11 questions for consideration in its Hearings on Competition Consumer Protection in the 21st Century. In the context of Question 6, one important area that needs addressing is the lack of guidelines that explain how the agencies review non-horizontal mergers. I am attaching three articles I have published on this subject which go into more detail. The FTC has never issued non-horizontal merger guidelines. The only ones that exist are the Department of Justices 1984 Guidelines. I think most antitrust attorneys and economists would agree that what is in those Guidelines is not wrong, but they do not go far enough because they do not address the concerns raised by the agencies over the years about non-horizontal mergers. The 1984 Guidelines do not even mention foreclosure, which has been the subject of many agency inquiries, nor do they address theories of the potential anticompetitive effects of increased bargaining power or reduced innovation alleged in ATT/Time Warner. Several reasons have been offered as to why the 1984 Guidelines have not been revised. First, non-horizontal mergers potentially present more complications than horizontal mergers and can be of concern under a number of theories of harm (e.g., exclusion, raising rivals costs, bargaining power) that require different analytical approaches (e.g., bid markets, bilateral monopoly, two-sided markets), and so may be more difficult and time consuming to draft than the Horizontal Merger Guidelines. Second, there are not very many non-horizontal mergers that present competitive problems, so why invest the time in revising them? Third, everyone already knows how non-horizontal mergers are evaluated. Fourth, conversely, non-horizontal guidelines that explain how these mergers are evaluated could deter efficient non-horizontal mergers. To me, these reasons are not persuasive. In an evolving, technology-driven economy, the agencies are conducting reviews of non-horizontal mergers that are often valued in the tens of billions of dollars and affect millions of consumers. Even if non-horizontal mergers that present competitive problems are not as numerous as horizontal mergers, the non-horizontal mergers that the agencies may see as potentially anticompetitive can be very important to the economy and consumers. Moreover, there are now many non-horizontal mergers being proposed and implemented in high technology, communications, and healthcare that would benefit from the clearer guidance that revised non-horizontal merger guidelines would provide. The 1984 Guidelines would not be more likely to deter efficient mergers than the agencies current policy. The recent history of agencies investigating and challenging major non-horizontal mergers, such as ATT/Time Warner, and mergers with non-horizontal aspects suggest that revised Guidelines would enable private parties to better identity mergers that are unlikely to be challenged and to avoid attempting mergers that would likely be challenged. Revised Guidelines would also provide guidance to the Agencies staff in their investigations, so it would be easier for those outside the Agencies to predict the mergers that would be investigated. To some degree, antitrust practitioners can predict how the agencies are likely to respond to non-horizontal mergers, but the number and importance of such challenges suggest that the existing understanding is inadequate -- at least in the business community, which values greater certainty and predictability. For example, the potential for complete foreclosure has been raised as a potential issue in several of the mergers on which I have worked over the years. However, the agencies view on the proper way to evaluate foreclosure has varied. The ATT/Time Warner merger challenge did not allege that foreclosure would likely occur, but involved (1) a bargaining model where the threat of foreclosure allowed the price increase and (2) concerns about stifling innovations. The challenge did not involve any theory discussed in the 1984 Guidelines. As someone who worked in the 1992 revision of the Horizontal Merger Guidelines when I was at the FTC, I know a revision of the 1984 Guidelines would be difficult and resource consuming. However, many other competition agencies around the world have taken on this challenge. The European Commission produced non-horizontal merger guidelines in 2007, Australian did in 2008, and others have followed. No guidelines are perfect, but that should not deter improving the 1984 Guidelines. As we have seen with the U.S. Horizontal Merger Guidelines and the other antitrust guidelines and statements, they can be revised as needed. The U.S. Horizontal Merger Guidelines have done much to advance the analysis and understanding of the competitive effects of horizontal mergers at the agencies, the courts, and the business community. Revising the 1984 Guidelines is likely to do the same.