Relevant Market and Concentration

Section 7 of the Clayton Act (Section 7)1 prohibits acquisitions that
may result in a substantial lessening of competition “in any line of
commerce or in any activity affecting commerce in any section of the
country.”2 This statutory language arguably requires the delineation of a
relevant product market (line of commerce) and relevant geographic
market (section of the country) within which to assess the competitive
effects of a business combination, and merger analysis traditionally has
begun with market definition.3
Traditionally, the determination of the appropriate relevant market or
markets within which to analyze a transaction, along with corresponding
measures of concentration within those markets, has provided the
backdrop against which to assess competitive effects. Market definition
“allows [enforcers] to identify market participants and measure market
shares and market concentration,”4 while market concentration “i s often
one useful indicator of likely competitive effects of a merger.”5 Indeed,
1. 15 U.S.C. §18.
2. Id. (emphasis added).
3. See Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962) (“the
‘area of effective competition’ must be determined by reference to a
product market (the ‘line of commerce’) and a geographic market (the
‘section of the country’).”). See also, e.g., United States v. E.I. du Pont de
Nemours & Co., 353 U.S. 586, 593 (1957) (“[s]ubstantiality can be
determined only in terms of the market affected”); United States v.
Marine Bancorp., 418 U.S. 602, 618 (1974); FTC v. Arch Coal, Inc.,
329F. Supp. 2d 109, 119 (D.D.C.) (“The defi nition of the relevant market
is necessary to identify that area of trade within which a defendant
allegedly has acquired or will acquire an ille gal monopolistic or
oligopolistic position.”), granting appellants’ motions for voluntary
dismissal of appeal, 2004 WL 2066879, at *1 (D.C. Cir. 2004); see also
Chapter III.A.1.
5. Id. § 5.3.
80 Mergers and Acquisitions
the courts and federal antitrust enforcement agencies long have adhered
to a rebuttable presumption that mergers resulting in a significant
increase in concentration in one or more highly-concentrated relevant
markets are anticompetitive.6 This presumption rests on the basic
premise that eliminating a significant independent competitor in a
highly-concentrated market may reduce competition by facilitating
coordinated interaction among the remaining firms or by allowing the
merged firm to obtain or enhance unilateral pricing power.7
6. See id. § 2.1.3 (“Mergers that cause a significant increase in concentration
and result in highly concentrated markets are presumed to be likely to
enhance market power, but this presumption can be rebutted by
persuasive evidence showing that the mer ger is unlikely to enha nce
market power.”). See also United States v. Philadelphia National Bank,
374 U.S. 321, 365 (1963) (a single firm controlling at least 30 percent of
the relevant market was sufficient to raise an inference that the effect of
the contemplated merger may be substantially to lessen competitio n);
United States v. Baker Hughes Inc., 908 F.2d 981, 982 (D.C. Cir. 1990)
(demonstrating that a merger would produc e a firm controlling an und ue
share of the relevant market a nd would result in a sign ificant increase in
the concentration of firms in the market establis hes a presumption that the
transaction will substantially lessen competition); FTC v. OSF Healt hcare
Sys., 852 F. Supp. 2d 1069, 1074 (N.D. Ill. 2012) (“[t]herefore, ‘[i]f the
government makes t his [prima facie] sho wing, a presumption o f illegality
arises’”) (citation omitted); United States v. H&R Block, Inc., 833 F.
Supp. 2d 36, 71 (D.D.C. 2011) (presumption created where merged firm
would have undue percentage share of relevant market and market would
be highly concentrated as a result of merger) (citations omitted). But see
United States v. Oracle Corp., 331F. Supp. 2d 1098, 1123 (N.D. Cal.
2004) (“A presumption of anticompetitive effects from a combined share
of 35 percent in a differentiated products market is unwarranted.”). Once
the government has established this p resumption, the bur den shifts to the
defendants to rebut the presumption by “‘show[ing] that the market-share
statistics give an inaccurate account of the merger’s probable effects on
competition in the relevant market.’” H&R Block, 833 F. Supp. 2d at 49-
50 (quoting FTC v. H.J. Heinz, Co., 246 F.3d 708, 715 (D.C. Cir. 2001)).
7. See United States v. Oracle Corp., 331 F. Supp. 2d at 1110 (“A
significant trend toward concentration create[d] a p resumption that the
transaction violates section 7.”); Arch Coal, 329 F. Supp. 2d at 116
(“Market concentration affects the likelihood that one firm, or a small
group of firms could successfully exercise market power.”); Heinz,
246 F.3d at 715-716 (concentration exceeding certain levels raises a
likelihood of “interdependent anticompetitive conduct”).
Relevant Market and Concentration 81
Notably, however, presumptions based on market concentration
provide only a starting point for merger analysis. Additional evidence
regarding a merger’s likely competitive effects is usually required to
determine its legality. Moreover, the increasing sophistication and
adoption of applied economics in recent years has resulted in some de-
emphasis on market definition and market concentration as critical steps
in merger analysis.8 Indeed, the antitrust agencies’ most recent Merger
Guidelines, issued in 2010, state that: “[t]he Agencies’ analysis need not
start with market definition. Some of the analytical tools used by the
Agencies to assess competitive effects do not rely on market definition,
although evaluation of competitive alternatives available to customers is
always necessary at some point in the analysis.”9 The Merger Guidelines
further state that: “[t]he measurement of market shares and market
concentration is not an end in itself, but is useful to the extent it
illuminates the merger’s likely competitive effects.”10
These statements are generally consistent with the Supreme Court’s
observation that “[s]ince the purpose of the inquiries into market
definition and market power [in antitrust cases] is to determine whether
an arrangement has the potential for genuine adverse effects on
competition, ‘proof of actual detrimental effects, such as a reduction in
output,’ can obviate the need for an inquiry into market power, which is
but a ‘surrogate for detrimental effects.’”11 They also reflect the
8. See, e.g., FTC Closing Statement, Office Depot/OfficeMax, No. 1310104,
at 2 (Nov. 1, 2013) (explaining reasons for closing investigation into
proposed merger without defining the relevant market or referencing
market concentration and observing that “[a]ll of the econometrics, none
of which assumed or depended on any particular definition of a relevant
product or geographic market, indicate that the merger is unlikely to lead
to anticompetitive price increases.”).
9. MERGER GUIDELINES, supra note 4, § 4.
10. Id.
11. FTC v. Indiana Fed’n of Dentists, 476 U.S.447, 460-61 (1986) (using
direct proof to show market power in a Sherman Act § 1 unreasonable
restraint of trade action) (quoting 7 PHIL LIP E. AREEDA, ANTITRUST LAW
1511, at 429 (1st ed. 1986)). Three courts of appeals have concurred
that “[m]arket share is just a way of estimating market power, which is
the ultimate consideration. When there are better ways to estimate market
power, the court s hould use them.” All en-Myland, Inc. v. IBM Corp.,
33F.3d 194, 209 (3d Cir. 1994); United States v. Baker Hughes Inc.,
908F.2d 981, 992 (D.C. Cir. 1990); Ball Mem’l Hosp. v. Mutual Hosp.
Ins., 784 F.2d 1325, 1336 (7th Cir. 1986).

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