Coordinated and Unilateral Anticompetitive Effects
Pages | 147-185 |
CHAPTER V
COORDINATED AND UNILATERAL
ANTICOMPETITIVE EFFECTS
The 2010 revision of the Antitrust Division of the Department of
Justice (DOJ or the Division) and Federal Trade Commission’s (FTC or
the Commission) Merger Guidelines1 confirmed that the analysis of
competitive effects is the key to merger review. It will not be relegated to
a later stage of the process, after, for example, determining market
definition. As the Merger Guidelines note, the agencies are often able to
draw preliminary conclusions about a transaction’s competitive effects
without identifying a specific relevant market.
In assessing under Section 7 of the Clayton Act (Section 7)2 whether
a merger between competitors “may substantially [] lessen
competition,”3 the agencies consider two primary theories of harm:
• Unilateral effects. As a result of the merger, the common owner
of previously competing products is able to increase the price of
one or the other product—without accounting for any reaction
from competitors—because it now internalizes the recapture of
sales that previously would have been lost to the other merging
party as a result of the price increase.4
1. See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL
MERGER GUIDELINES (2010) [hereinafter MERGER GUIDELINES] § 6.1,
available at http://www.justice.gov/atr/public/guidelines/hmg-2010.html
(“Diagnosing unilateral price effects based on the value of diverted sales
need not rely on market definition or the calculation of market shares and
concentration. The Agencies rely much more on the value of diverted
sales than on the level of the HHI for diagnosing unilateral price effects
in markets with differentiated products.”).
2. 15 U.S.C. §18.
3. Id.
4. See MERGER GUID ELINES, supra note 1, § 6. For example, if, prior to a
merger between firms A and B, firm A sets its price so that its marginal
revenue equals its marginal cost, any unilateral price increase by firm A
will result in a loss of profit because the lo st profit resulting from the
demand side substitution outweighs any increased profitability on the
147
148 Mergers and Acquisitions
• Coordinated effects. As a result of the merger, firms in the
industry are better able to coordinate their behavior with the
effect of raising prices, even without express communication.5
Of course, each of these theories of harm is itself a simplification.
Mergers typically lead not only to a change in the merging parties’
unilateral incentives, but also to a change in competitors’ incentives.
Dividing theories of harm along these lines often makes sense,
however, because of how these effects play out in the large majority of
mergers. Generally, the more homogeneous the products offered by
sellers in the relevant market, the more likely a merger between
companies in that market will facilitate coordinated interaction among
the remaining competitors. The more differentiated the products in the
relevant market, the more difficult it is for competitors to coordinate
because it is typically more difficult to reach terms of coordination and to
detect or punish deviations from those terms.6 Thus, in a merger of firms
producing differentiated products, unilateral effects typically dominate in
remaining products sold. However, after the merger, some of the lost
profit resulting from the demand side substitutio n will be internalized and
recaptured by firm B which could, depending on firm B’s profit margin,
result in a sufficient benefit to justify an increase in the price charged by
firm A. “By eliminati ng competition between the merging fir ms, a merger
gives the merged fir m incentives differ ent from those of the merging
firms.” U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, COMMENTARY ON
THE HORIZONTAL MERGER GUIDELINES 25 (2006) [hereinafter MERGER
GUIDELINES COMMENTARY], available at http://www.ftc.gov/sites/
default/files/attachments/merger-review/commenta ryonthehorizontal
mergerguidelines march2006.pdf.
5. See MERGER GUIDELINES, supra note 1, § 7 “Coordinated interaction
involves conduct by multiple firms that is profitable for each of them only
as a result of the accommodating reactions of the others.” Id. “A merger
could reduce competition substantially through coordinated interaction
and run afoul of secti on 7 of the Clayton Act without an agree ment or
conspiracy within the meaning of the S herman Act.” MERGER
GUIDELINES COMMENTARY, supra note 4, at 18. Coor dinated effects
analysis considers past coordination and factors indicating susceptibility
to coordination such as product homogeneity and transparency of prices.
6. See MERGER GUIDELINES, supra not e 1, § 7.2 (explaining that prices are
more likely to be transparent and that a merging firm is more likely to
anticipate punishment by its rivals for deviation whe n the products in the
relevant market are relatively homogeneous).
Coordinated and Unilateral Anticompetitive Effects 149
the transaction analysis.7 Between these two ends of the spectrum, the
division between these theories of harm can be less clear, and for many
mergers, both coordinated and unilateral effects may play an important
role in the analysis.8
A. Unilateral Anticompetitive Effects
Over the history of the Merger Guidelines, unilateral effects have
taken on an increasingly significant role, from their first true description
in the 1992 Merger Guidelines9 to the agencies’ growing enforcement
based on unilateral effects through the late 1990s.10 The 2010 revision of
the Merger Guidelines doubles the length of the section describing
unilateral effects analysis, largely to reflect the maturing of the economic
tools used to examine unilateral effects.11 The 2010 re vision of the
Merger Guidelines identifies several economic tools, including diversion
ratios, upward pricing pressure (UPP) analysis, and merger simulation
models.12
7. See Carl Shapiro, Mergers with Differentiated Products, ANTITRUST,
Spring 1996, at 23 (“When products are highly differentiated, concerns
about coordinated effects may be secondary to concerns about unilateral
effects.”).
8. MERGER GUIDELINES, supra note 1, § 1.
9. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER
GUIDELINES (1992) (with Apr. 8, 1997 revisions to § 4 on efficiencies
[hereinafter 1992 MERGER GUIDELINES), available at http://www.justice.
gov/atr/hmerger/11250.htm.
10. See MERGER GUIDELINES, supra note 1, § 6; MERGER GUIDELINES
COMMENTARY, supra note 4, at 25; Timothy J. Muris, Chairman, Fed.
Trade Comm’n, Antitrust Enforcement at the Federal Trade Commission:
In a Word—Continuity, Remarks before the ABA Antitrust Section
(Aug. 7, 2001), available at http://www.ftc.gov/public-statements/2001/
08/antitrust-enforcement-federal-trade-commission-word-conti nuity
(“[A]lthough we have always had what could be called ‘unilateral effects’
theories, they have evolved, and they have bee n more widely applied
since the 1992 revision of the Guidelines.”).
11. MERGER GUIDELINES, supra note 1, § 6.
12. Id.
To continue reading
Request your trial