Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: FTC and Justice Department issue new proposed merger guidelines, (Jul 19, 2023)

By Peter Reap, J.D., LL.M.

The White House applauded the agencies for reflecting current economic evidence and the realities of more concentrated markets.

The FTC and Department of Justice today announced the release, for public comment, their updated 2023 Draft Merger Guidelines, which are intended to describe and guide the agencies’ review of mergers and acquisitions to determine compliance with federal antitrust laws. Together, the country’s two antitrust enforcement agencies (hereinafter, the Agencies) stated that the goal with these update guidelines is to better reflect how the Agencies determine a merger’s effect on competition in the modern economy and evaluate proposed mergers under the law. The White House applauded the release in a separate announcement that highlighted important changes, stating that “these Guidelines provide clarity to a broad audience about which types of mergers may substantially lessen competition in a way that would harm other market participants, including workers and consumers.”

Background. Since 1968, the two Agencies have issued and revised merger guidelines to enhance transparency and illustrate how they approach mergers and acquisitions. The currently effective merger guidelines are split into two parts—the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines. Prior to 2010, these two parts had been combined into one document, and previous iterations of merger guidelines were released in 1968, 1982, 1984, 1992, and 1997. In 2021, President Biden called for updated merger guidelines in his Executive Order on Promoting Competition in the American Economy. Following a public comment period, which included a request for information, more than 5,000 members of the public contributed feedback on potential revisions. The Agencies also conducted four listening sessions to inform their revisions to the guidelines.

Revisions-format. The White House announcement highlighted a number of revisions in the 2023 Draft Guidelines (hereinafter the Draft Guidelines) from previous versions. The first change is that, with the new Draft Guidelines, the parts have been combined into one document, as they existed in previous iterations.

Revisions-concentration threshold. In order to quantify the concentration in a market, the Agencies and the courts have generally relied on the Herfindahl-Hirschman Index—the higher the index, the more concentrated a market, and the larger the change in the index due to the merger, the more likely it might be to cause harm. In 2010, the Agencies increased the thresholds at which they began to consider a market “highly concentrated” as well as what change in index driven by the merger would cause them concern, effectively allowing more mergers to proceed. The Draft Guidelines would restore both values to the pre-2010 levels.

Revisions-series of acquisitions by dominant firms. The Draft Guidelines clarify that the Agencies consider mergers in the context of the broader market and trends, rather than assessing each merger in isolation. For example, they describe how the Agencies may examine mergers in the context of the firm’s broader merger activity—e.g., patterns of serial acquisitions. In addition, the Draft Guidelines outline how Agencies consider acquisitions by a dominant firm of potential future competitors.

Revisions-platforms. The Draft Guidelines explicitly address platform economics—where a firm operates in a two-sided market by facilitating economic activity between two other parties—and the potential for firms to entrench themselves. A rising share of the economy involves platform markets, and their rising importance and the widespread collection of data to power them justifies a more explicit treatment of how related mergers may be assessed.

Revisions-monopsony power, especially in labor markets. The Draft Guidelines now explicitly spell out how the Agencies think about mergers that may substantially lessen competition for workers, especially in monopsonistic (as opposed to monopolistic) markets. They specifically outline how the Agencies are conducting merger review within the context of broader markets, taking into consideration the role of dominant firms, entrenched market positions, platforms, and monopsony power.

Revisions-accessibility. The Draft Guidelines use more straightforward language and give more background for readers who are not already antitrust practitioners. Throughout the Draft Guidelines, the Agencies clearly and explicitly reference the relevant court decisions that inform their approach.

Agencies’ approach to the revisions. According to the Agencies, the Draft Guidelines build upon, expand, and clarify frameworks set out in previous versions. At the outset, they provide thirteen principles or guidelines that the Agencies may use when determining whether a merger is unlawfully anticompetitive under the antitrust laws. The document then describes in greater depth the frameworks and tools that may be used when analyzing a merger with respect to each guideline. In making their revisions, the Agencies focused on three core goals: (1) reflect the law as written by Congress and interpreted by the highest courts; (2) be accessible, increasing transparency and awareness; and (3) provide frameworks that reflect the realities of our modern economy and the best of modern economics and other analytical tools.

The thirteen Draft Guidelines. The thirteen Guidelines in the draft are not mutually exclusive, the Agencies cautioned, as a single transaction can have multiple effects or trigger concern in multiple ways. To promote efficient review, for any given transaction the Agencies may limit their analysis to any one Guideline or subset of Guidelines that most readily demonstrates the risks to competition from the transaction.

In brief, Guidelines 1-8 identify several frameworks that the Agencies use to assess the risk that a merger’s effect may be substantially to lessen competition or to tend to create a monopoly. Guidelines 9-12 explain issues that often arise when the Agencies apply those frameworks in several common settings. Guideline 13 explains how the Agencies consider mergers and acquisitions that raise competitive concerns not addressed by the other Guidelines.

Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets. Concentration refers to the number and relative size of rivals competing to offer a product or service to a group of customers. The Agencies examine whether a merger between competitors would significantly increase concentration and result in a highly concentrated market. If so, the Agencies presume that a merger may substantially lessen competition based on market structure alone.

Guideline 2: Mergers Should Not Eliminate Substantial Competition between Firms. The Agencies examine whether competition between the merging parties is substantial, since their merger will necessarily eliminate competition between them.

Guideline 3: Mergers Should Not Increase the Risk of Coordination. The Agencies examine whether a merger increases the risk of anticompetitive coordination. A market that is highly concentrated or has seen prior anticompetitive coordination is inherently vulnerable and the Agencies will presume that the merger may substantially lessen competition. In a market that is not yet highly concentrated, the Agencies investigate whether facts suggest a greater risk of coordination than market structure alone would suggest.

Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market. The Agencies examine whether, in a concentrated market, a merger would (a) eliminate a potential entrant or (b) eliminate current competitive pressure from a perceived potential entrant.

Guideline 5: Mergers Should Not Substantially Lessen Competition by Creating a Firm That Controls Products or Services That Its Rivals May Use to Compete. When a merger involves products or services rivals use to compete, the Agencies examine whether the merged firm can control access to those products or services to substantially lessen competition and whether they have the incentive to do so.

Guideline 6: Vertical Mergers Should Not Create Market Structures That Foreclose Competition. The Agencies examine how a merger would restructure a vertical supply or distribution chain. At or near a 50% share, market structure alone indicates the merger may substantially lessen competition. Below that level, the Agencies examine whether the merger would create a “clog on competition…which deprives rivals of a fair opportunity to compete.”

Guideline 7: Mergers Should Not Entrench or Extend a Dominant Position. The Agencies examine whether one of the merging firms already has a dominant position that the merger may reinforce. They also examine whether the merger may extend that dominant position to substantially lessen competition or tend to create a monopoly in another market.

Guideline 8: Mergers Should Not Further a Trend Toward Concentration. If a merger occurs during a trend toward concentration, the Agencies examine whether further consolidation may substantially lessen competition or tend to create a monopoly.

Guideline 9: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series. If an individual transaction is part of a firm’s pattern or strategy of multiple acquisitions, the Agencies consider the cumulative effect of the pattern or strategy.

Guideline 10: When a Merger Involves a Multi-Sided Platform, the Agencies Examine Competition Between Platforms, on a Platform, or to Displace a Platform. Multi-sided platforms have characteristics that can exacerbate or accelerate competition problems. The Agencies consider the distinctive characteristics of multi-sided platforms carefully when applying the other Guidelines.

Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers. Section 7 protects competition among buyers and prohibits mergers that may substantially lessen competition in any relevant market. The Agencies therefore apply these Guidelines to assess whether a merger between buyers, including employers, may substantially lessen competition or tend to create a monopoly.

Guideline 12: When an Acquisition Involves Partial Ownership or Minority Interests, the Agencies Examine Its Impact on Competition. Acquisitions of partial control or common ownership may in some situations substantially lessen competition.

Guideline 13: Mergers Should Not Otherwise Substantially Lessen Competition or Tend to Create a Monopoly. The Guidelines are not exhaustive of the ways that a merger may substantially lessen competition or tend to create a monopoly.

FTC comments. “Open, competitive, resilient markets have been a bedrock of America’s economic success and dynamism throughout our nation’s history. Faithful and vigorous enforcement of the antitrust laws is key to maintaining that success,” said FTC Chair Lina M. Khan. “With these draft Merger Guidelines, we are updating our enforcement manual to reflect the realities of how firms do business in the modern economy. Informed by thousands of public comments—spanning healthcare workers, farmers, patient advocates, musicians, and entrepreneurs—these guidelines contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books.” Separate statements on the Draft Guidelines were also released by FTC Commissioners Bedoya, Slaughter, and Chair Khan.

Justice Department comments. “Unchecked consolidation threatens the free and fair markets upon which our economy is based,” said Attorney General Merrick B. Garland. “These updated Merger Guidelines respond to modern market realities and will enable the Justice Department to transparently and effectively protect the American people from the damage that anticompetitive mergers cause.”

“Competitive markets and economic opportunity go hand in hand. Today, we are issuing draft guidelines that are faithful to the law, which prevents mergers that threaten competition or tend to create monopolies. As markets and commercial realities change, it is vital that we adapt our law enforcement tools to keep pace so that we can protect competition in a manner that reflects the intricacies of our modern economy. Simply put, competition today looks different than it did 50 — or even 15 — years ago.” said Assistant Attorney General Jonathan Kanter of the Antitrust Division. “There will be a substantial process for public to review and provide comments before we finalize these guidelines.”

Public comments. The public is invited to provide comments to the Draft Guidelines for a period of 60 days. A fact sheet was provided to facilitate public comment. The deadline is September 18, 2023.

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