2010 Department of Justice and Federal Trade Commission Horizontal Merger Guidelines

• Pages: 73-122

73

2010 DEPARTMENT OF JUSTICE AND FEDERAL

TRADE COMMISSION HORIZONTAL MERGER

GUIDELINES

1. Overview

These Guidelines outline the principal analytical techniques,

practices, and the enforcement policy of the Department of Justice and

the Federal Trade Commission (the “Agencies”) with respect to mergers

and acquisitions involving actual or potential competitors (“horizontal

mergers”) under the federal antitrust laws.1 The relevant statutory

provisions include Section 7 of the Clayton Act, 15 U.S.C. § 18, Sections

1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 5 of the

Federal Trade Commission Act, 15 U.S.C. § 45. Most particularly,

Section 7 of the Clayton Act prohibits mergers if “in any line of

commerce or in any activity affecting commerce in any section of the

country, the effect of such acquisition may be substantially to lessen

competition, or to tend to create a monopoly.”

The Agencies seek to identify and challenge competitively harmful

mergers while avoiding unnecessary interference with mergers that are

either competitively beneficial or neutral. Most merger analysis is

necessarily predictive, requiring an assessment of what will likely

happen if a merger proceeds as compared to what will likely happen if it

does not. Given this inherent need for prediction, these Guidelines reflect

the congressional intent that merger enforcement should interdict

competitive problems in their incipiency and that certainty about

anticompetitive effect is seldom possible and not required for a merger to

be illegal.

1. These Guidelines replace the Horizontal Merger Guidelines issued in 1992,

revised in 1997. They reflect the ongoing accumulation of experience at

the Agencies. The Commentary on the Horizontal Merger Guidelines

issued by the Agencies in 2006 remains a valuable supplement to these

Guidelines. These Guidelines may be revised from time to time as

necessary to reflect significant changes in enforcement policy, to clarify

existing policy, or to reflect new learning. These Guidelines do not cover

vertical or other types of non-horizontal acquisitions.

74 HANDBOOK OF U.S. ANTITRUST SOURCES

These Guidelines describe the principal analytical techniques and the

main types of evidence on which the Agencies usually rely to predict

whether a horizontal merger may substantially lessen competition. They

are not intended to describe how the Agencies analyze cases other than

horizontal mergers. These Guidelines are intended to assist the business

community and antitrust practitioners by increasing the transparency of

the analytical process underlying the Agencies’ enforcement decisions.

They may also assist the courts in developing an appropriate framework

for interpreting and applying the antitrust laws in the horizontal merger

context.

These Guidelines should be read with the awareness that merger

analysis does not consist of uniform application of a single methodology.

Rather, it is a fact-specific process through which the Agencies, guided

by their extensive experience, apply a range of analytical tools to the

reasonably available and reliable evidence to evaluate competitive

concerns in a limited period of time. Where these Guidelines provide

examples, they are illustrative and do not exhaust the applications of the

relevant principle.2

A merger can enhance market power simply by eliminating

competition between the merging parties. This effect can arise even if the

merger causes no changes in the way other firms behave. Adverse

competitive effects arising in this manner are referred to as “unilateral

effects.” A merger also can enhance market power by increasing the risk

of coordinated, accommodating, or interdependent behavior among

rivals. Adverse competitive effects arising in this manner are referred to

as “coordinated effects.” In any given case, either or both types of effects

may be present, and the distinction between them may be blurred.

2. These Guidelines are not intended to describe how the Agencies will

conduct the litigation of cases they decide to bring. Although relevant in

that context, these Guidelines neither dictate nor exhaust the range of

evidence the Agencies may introduce in litigation.

The unifying theme of these Guidelines is that mergers should not be

permitted to create, enhance, or entrench market power or to facilitate its

exercise. For simplicity of exposition, these Guidelines generally refer to

all of these effects as enhancing market power. A merger enhances market

power if it is likely to encourage one or more firms to raise price, reduce

output, diminish innovation, or otherwise harm customers as a result of

diminished competitive constraints or incentives. In evaluating how a

merger will likely change a firm’s behavior, the Agencies focus primarily

on how the merger affects conduct that would be most profitable for the

firm.

2010 HORIZONTAL MERGER GUIDELINES 75

These Guidelines principally describe how the Agencies analyze

mergers between rival suppliers that may enhance their market power as

sellers. Enhancement of market power by sellers often elevates the prices

charged to customers. For simplicity of exposition, these Guidelines

generally discuss the analysis in terms of such price effects. Enhanced

market power can also be manifested in non-price terms and conditions

that adversely affect customers, including reduced product quality,

reduced product variety, reduced service, or diminished innovation. Such

non-price effects may coexist with price effects, or can arise in their

absence. When the Agencies investigate whether a merger may lead to a

substantial lessening of non-price competition, they employ an approach

analogous to that used to evaluate price competition. Enhanced market

power may also make it more likely that the merged entity can profitably

and effectively engage in exclusionary conduct. Regardless of how

enhanced market power likely would be manifested, the Agencies

normally evaluate mergers based on their impact on customers. The

Agencies examine effects on either or both of the direct customers and

the final consumers. The Agencies presume, absent convincing evidence

to the contrary, that adverse effects on direct customers also cause

adverse effects on final consumers.

Enhancement of market power by buyers, sometimes called

“monopsony power,” has adverse effects comparable to enhancement of

market power by sellers. The Agencies employ an analogous framework

to analyze mergers between rival purchasers that may enhance their

market power as buyers. See Section 12.

2. Evidence of Adverse Competitive Effects

The Agencies consider any reasonably available and reliable

evidence to address the central question of whether a merger may

substantially lessen competition. This section discusses several

categories and sources of evidence that the Agencies, in their experience,

have found most informative in predicting the likely competitive effects

of mergers. The list provided here is not exhaustive. In any given case,

reliable evidence may be available in only some categories or from some

sources. For each category of evidence, the Agencies consider evidence

indicating that the merger may enhance competition as well as evidence

indicating that it may lessen competition.