Advances of the 1992 Horizontal Merger Guidelines in the Analysis of Competitive Effects

• DOI: 10.1177/0003603X9303800302
• Date: 01 September 1993
• Author: Paul T. Denis
• Published date: 01 September 1993
• Subject Matter: Article

The Antitrust BulletinlFall1993

Advances

of

the 1992 Horizontal

Merger Guidelines in the analysis

of

competitive effects

BY PAUL T.

DENIS·

479

When viewed from the antitrust perspective, some mergers are

considered "bad," while other mergers are considered "good," or

at least "not bad." What is it that separates the bad mergers from

the rest? What is it that we fear will happen if the bad mergers are

not blocked? More formally, what are the potential adverse com-

petitive effects

of

concern that define the objectives of antitrust

merger enforcement?

Perhaps the most significant contribution

of

the new Horizon-

tal Merger Guidelines, issued jointly by the Department of Justice

*Partner, Arnold &Porter, Washington, D.C.

AUTHOR'S NOTE: Revised and extended from remarks made at the West-

ern Economics Association 67th Annual International Conference Con-

temporary Policy Issues Session: The 1992 Merger Guidelines: View from

the Inside, San Francisco, California, July 11, 1992. This article benefited

greatly from discussions with the other panelists as well as comments

from Tom Baker and Robert Willig. None

of

the above bear responsibility

for

what remains.

Ii) 1993 by Federal Legal Publications, Inc.

480

The antitrust bulletin

(001)

and the Federal Trade Commission

(FfC)

, is to clarify the

answer to these questions and to present aframework for distin-

guishing

the

bad

from the rest.' In doing so, the 1992 Guidelines

continue

the

efforts

of

the 1982 and 1984 versions

of

the

DOJ

Guidelines and the 1982

FfC

Statement on Horizontal Mergers to

move

away from

"merger

analysis by the

numbers"

and toward a

more

complete

analysis considering not only market concentration

but

also

other

market

factors

relevant

to the

likely

effect

of

a

merger.

This article reviews the prior treatment

of

competitive effects

and the relationship between market concentration and competi-

tive

effects

in

the

Supreme

Court

decisions

and

enforcement

agency guidelines before outlining the analytical framework artic-

ulated by the 1992 Guidelines.

I.

Early

Supreme

Court

precedent

The

antitrust treatment

of

mergers is governed by section 7

of

the

Clayton

Act, which was amended in 1950 to

prohibit

stock

and asset acquisitions where

"the

effect

of

such acquisition may

be

substantially

to

lessen

competition,

or

tend

to

create

a

monopoly."2

Left

to the courts were the tasks

of

identifying

the

adverse

competitive

effects

of

concern

(the

ways

in

which

a

merger

might

substantially lessen

competition)

and

determining

Department of Justice and Federal Trade Commission, Horizontal

Merger Guidelines (April 2, 1992), reprinted in 4 Trade Reg. Rep. (CCH)

~

13,104 [hereinafter 1992 Guidelines]. The analysis of the 1992 Guide-

lines builds on the framework of the 1982 Guidelines and their 1984 revi-

sions. See Department of Justice, Merger Guidelines (June 14, 1984),

reprinted in 4 Trade Reg. Rep. (CCH)

~

13,103 [hereinafter 1984 Guide-

lines] and Department of Justice, Merger Guidelines (June 14, 1982),

reprinted in 4 Trade Reg. Rep. (CCH)

~

13,102 [hereinafter 1982 Guide-

lines].

215 U.S.c. §18. Mergers may also be evaluated under section 1 of

the Sherman Act, 15 U.S.C. §I, or section 5 of the Federal Trade Com-

mission Act, 15 U.S.C. §45, but the standards under those statutes have

converged to the section 7standard. See United States v. Rockford

Memorial Corp., 898 F.2d 1278 (7th Cir. 1990).

Competitive effects: 481

how to distinguish mergers in which those effects were likely

from mergers in which those effects were not likely. The tasks

were enormous and seemingly unbounded. But after the wide-

ranging congressional debate, the statutory language offered the

courts at least two points

of

guidance:

(1)

Congress chose to pro-

hibit only those mergers with adverse competitive effects, as dis-

tinguished from mergers with adverse sociopolitical effects and

(2) Congress did not choose to ban all mergers in concentrated

markets or all mergers

significantly

increasing

concentration;

Congress prohibited only those likely to lessen competition.

The Supreme Court was slow to respond to the tasks left to it

by the amended law. Only twice in nine opinions did the Court

articulate a view of the competitive effects of concern. The com-

petitive effects focus

of

antitrust merger analysis has evolved over

the last 30 years from a fear

of

concentration in and

of

itself to a

fear

of

specific postmerger conduct. But whatever the competitive

effect of concern was, analysis of market concentration data was

somehow central to distinguishing mergers likely to have adverse

effects from those unlikely to have such effects.

In

Brown

Shoe, the Supreme Court's first horizontal merger

decision after the adoption

of

the revised Clayton Act in 1950, the

Court never articulated what might happen as a result

of

amerger

that might lead to a lessening

of

competition. The

closest

the

Court came to articulating the competitive effects

of

concern was

paraphrasing the statute, referring to section 7 as a "tool for pre-

venting

all

mergers

having

a

demonstrable

anti

competitive

effect."! By contrast, the Court noted, the legislative history was

clear that section 7 was not intended to impede

for example, amerger between two small companies to

enable

the

combination

to

compete

more

effectively

with

larger

corporations

dominating the relevant market. nor a merger between acorporation

which is financially healthy and a failing one which no longer can be a

vital competitive factor in the market.'

3Brown Shoe, 370 U.S. 294, 319 (1962).

4Jd.