The Federal Trade Commission and the Department of Justice on Tuesday jointly issued long-awaited vertical merger guidelines that will replace decades-old parameters to more accurately represent the agencies’ merger review process. This marks the first time the DOJ and FTC have issued joint guidelines on vertical mergers.
The new guidelines, which replace the antiquated 1984 Non-Horizonal Merger Guidelines, outline for practitioners how federal antitrust agencies review vertical mergers to evaluate whether they violate antitrust law. They were finalized this week after the agencies made modifications based on 74 substantive comments on the original draft from earlier this year.
“The new vertical merger guidelines will provide greater transparency and predictability to the marketplace when businesses combine at different levels of the supply chain,” said Deputy Attorney General Jeff Rosen.
Vertical mergers combine two or more companies that operate at different levels in the same supply chain. These guidelines are designed to help the agencies both identify mergers that would harm competition while also not interfering with mergers that either wouldn’t impact competition or would impact it in a positive way.
The guidelines make their process for evaluating vertical mergers more transparent for practitioners. Specifically, the 12 pages of joint-agency guidance do the following (as outlined by the agencies):
- Explain that mergers often present both horizontal and vertical elements, and the agencies may apply both the Horizontal Merger Guidelines and the Vertical Merger Guidelines in their evaluation of a transaction, as part of a fact-specific process involving a variety of tools to determine whether a merger may substantially lessen competition.
- Clarify that its analytical techniques, practices, and enforcement policies apply to a range of non-horizontal transactions, including strictly vertical mergers, “diagonal” mergers, and vertical issues that can arise in mergers of complement.
- Clarify that when the agencies identify a potential competitive concern in a relevant market, they will also specify one or more related products. A related product is a product or service supplied or controlled by the merged firm and positioned vertically or is complementary to the products and services in the relevant market.
- Provide detailed discussions, including multiple diverse examples, of the “raising rivals’ costs” and “foreclosure” theories of harm. In recent decades, these theories of harm have been the [principal] theories investigated in merger reviews.
- Identify conditions under which a vertical merger would not require an extensive investigation, because the merger does not create or enhance the merged firm’s incentive or ability to harm rivals.
- Emphasize that analyzing efficiencies is an important part of reviewing vertical mergers.
- Explain in detail the analysis of the elimination of double marginalization (EDM), which economists emphasize is a frequent procompetitive result of vertical transactions.