Appendix I. 1992 Department of Justice and Federal Trade Commission Horizontal Merger Guidelines

• Pages: 541-678

541

APPENDIX I

1992 DEPARTMENT OF JUSTICE AND

FEDERAL TRADE COMMISSION

HORIZONTAL MERGER GUIDELINES

U.S. Department of Justice and Federal Trade Commission

Statement Accompanying Release of Revised Merger Guidelines.

April 2, 1992

The U.S. Department of Justice (“Department”) and Federal Trade

Commission (“Commission”) today jointly issued Horizontal Merger

Guidelines revising the Department’s 1984 Merger Guidelines and the

Commission’s 1982 Statement Concerning Horizontal Merger

Guidelines. The release marks the first time that the two federal agencies

that share antitrust enforcement jurisdiction have issued joint guidelines.

Central to the 1992 Department of Justice and Federal Trade

Commission Horizontal Merger Guidelines is a recognition that sound

merger enforcement is an essential component of our free enterprise

system benefiting the competitiveness of American firms and the welfare

of American consumers. Sound merger enforcement must prevent

anticompetitive mergers yet avoid deterring the larger universe of

procompetitive or competitively neutral mergers. The 1992 Horizontal

Merger Guidelines implement this objective by describing the analytical

foundations of merger enforcement and providing guidance enabling the

business community to avoid antitrust problems when planning mergers.

The Department first released Merger Guidelines in 1968 in order to

inform the business community of the analysis applied by the

Department to mergers under the federal antitrust laws. The 1968 Merger

Guidelines eventually fell into disuse, both internally and externally, as

they were eclipsed by developments in legal and economic thinking

about mergers.

In 1982, the Department released revised Merger Guidelines which,

reflecting those developments, departed dramatically from the 1968

version. Relative to the Department’s actual practice, however, the 1982

Merger Guidelines represented an evolutionary not revolutionary change.

542 MERGERS AND ACQUISITIONS

On the same date, the Commission released its Statement Concerning

Horizontal Mergers highlighting the principal considerations guiding the

Commission’s horizontal merger enforcement and noting the

“considerable weight” given by the Commission to the Department’s

1982 Merger Guidelines .

The Department’s current Merger Guidelines, released in 1984,

refined and clarified the analytical framework of the 1982 Merger

Guidelines. Although the agencies’ experience with the 1982 Merger

Guidelines reaffirmed the soundness of its underlying principles, the

Department concluded that there remained room for improvement.

The revisions embodied in the 1992 Horizontal Merger Guidelines

reflect the next logical step in the development of the agencies’ analysis

of mergers. They reflect the Department’s experience in applying the

1982 and 1984 Merger Guidelines as well as the Commission’s

experience in applying those Guidelines and the Commission’s 1982

Statement. Both the Department and the Commission believed that their

respective Guidelines and Statement presented sound frameworks for

antitrust analysis of mergers, but that improvements could be made to

reflect advances in legal and economic thinking. The 1992 Horizontal

Merger Guidelines accomplish this objective and also clarify certain

aspects of the Merger Guidelines that proved to be ambiguous or were

interpreted by observers in ways that were inconsistent with the actual

policy of the agencies.

The 1992 Horizontal Merger Guidelines do not include a discussion

of horizontal effects from non-horizontal mergers (e.g., elimination of

specific potential entrants and competitive problems from vertical

mergers). Neither agency has changed its policy with respect to non-

horizontal mergers. Specific guidance on non-horizontal mergers is

provided in Section 4 of the Department’s 1984 Merger Guidelines, read

in the context of today’s revisions to the treatment of horizontal mergers.

A number of today’s revisions are largely technical or stylistic. One

major objective of the revisions is to strengthen the document as an

analytical road map for the evaluation of mergers. The language,

therefore, is intended to be burden-neutral, without altering the burdens

of proof or burdens of coming forward as those standards have been

established by the courts. In addition, the revisions principally address

two areas.

The most significant revision to the Merger Guidelines is to explain

more clearly how mergers may lead to adverse competitive effects and

Appendix I 543

how particular market factors relate to the analysis of those effects.

These revisions are found in Section 2 of the Horizontal Merger

Guidelines. The second principal revision is to sharpen the distinction

between the treatment of various types of supply responses and to

articulate the framework for analyzing the timeliness, likelihood and

sufficiency of entry. These revisions are found in Sections 1.3 and 3.

The new Horizontal Merger Guidelines observe, as did the 1984

Guidelines, that because the specific standards they set out must be

applied in widely varied factual circumstances, mechanical application of

those standards could produce misleading results. Thus, the Guidelines

state that the agencies will apply those standards reasonably and flexibly

to the particular facts and circumstances of each proposed merger.

Department of Justice and Federal Trade Commission Horizontal

Merger Guidelines, Issued April 2, 1992

0. Purpose, Underlying Policy Assumptions and Overview

0.1 Purpose and Underlying Policy Assumptions of the Guidelines

0.2 Overview

1. Market Definition, Measurement and Concentration

1.0 Overview

1.1 Product Market Definition

1.2 Geographic Market Definition

1.3 Identification of Firms That Participate in the Relevant Market

1.4 Calculating Market Shares

1.5 Concentration and Market Shares

2. The Potential Adverse Competitive Effects of Mergers

2.0 Overview

2.1 Lessening of Competition Through Coordinated Interaction

2.2 Lessening of Competition Through Unilateral Effects

3. Entry Analysis

3.0 Overview

3.1 Entry Alternatives

3.2 Timeliness of Entry

3.3 Likelihood of Entry

3.4 Sufficiency of Entry

4. Efficiencies

5. Failure and Exiting Assets

5.0 Overview

5.1 Failing Firm