Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC Bureau of Competition Director forward-looking analysis in merger review, (Feb 10, 2014)

By Linda O’Brien, J.D., LL.M.

The task of merger review is to predict with some level of certainty whether the merger’s likely competitive effects based on facts, economic learning, and reasoned analysis require intervention to prevent substantial harm to competition and consumers, FTC Bureau of Competition Director Deborah L. Feinstein said in remarks prepared for delivery on February 6 before the Advanced Antitrust U.S. conference in San Francisco. Feinstein discussed the agency’s use of forward-looking tools in its merger analysis, both qualitative and quantitative, to assess the likely competitive outcome of a proposed transaction, in her speech, entitled “The Forward-Looking Nature of Merger Analysis.”

To prevent the forward-looking analysis from veering into mere speculation, the FTC and courts focus on facts, according to Feinstein. Predicting competitive conditions after a merger requires an understanding of market dynamics developing real-time that will likely bear on future competition.

How an industry has operated in the past is not an adequate predictor of the future. Even where a competitor’s long-term prospects look dim, the FTC must still assess whether there is short-to-intermediate term competition worth protecting. Similarly, the prospects for a new or improved technology can differ by end-use, Feinstein stated.

The FTC must assess whether firms not currently selling products or services should be included as market participants for purposes of competitive analysis. The question applies to both merging parties and other competitors that may enter the market.

Merger of direct competitors. A typical transaction involves the combination of two direct competitors. According to Feinstein, the central question of merger review in this situation is whether the elimination of direct competition is likely to substantially lessen competition. The FTC will examine historic facts, such a market shares in past years, whether the companies have marketed or bid against each other before, and what factors influenced pricing. A firm not currently making sales can nonetheless be in the market based on evidence that it is already having an effect on the behavior of firms currently making sales. There is often no clear line between a committed, likely, potential, and future entrant. A fact-based analysis allows the FTC to predict whether a firm is sufficiently likely to enter that its acquisition will harm competition, Feinstein noted.

Competition in future markets. Feinstein next discussed transactions that eliminate competition in future markets. When merging firms are the only or most likely entrants into a future market, the FTC will take action (1) where each firm is likely to be competitor going forward; (2) where the merging companies are two of very few firms likely to successfully develop a future product; and (3) where other firms lag behind the efforts of either merging party such that the combination is likely to delay the emergence of real competition in the market for the new product.

In investigations involving future markets, the FTC will look at the same sources of evidence that inform the contours of competition in existing markets, Feinstein noted. Those issues include: (1) whether the firms are developing new products; (2) whether third parties are advantaged or disadvantaged in their efforts to develop a product and compete in the future compared to the merging parties; (3) what customers say about competition in the future based on what they want in the future and what they know about the firms’ ability to develop them; and (4) what is the timeline for these entry developments. The FTC uses a fact-based approach to answer these questions. While the agency is mindful of the limitations on the ability to predict far into the future or in markets that are rapidly changing, Section 7 of the Clayton Act requires that the FTC do as much, Feinstein concluded.

News: Antitrust FederalTradeCommissionNews