Vertical Mergers that Induce Exit

• DOI: http://doi.org/10.1177/0003603X221103198
• Published date: 01 September 2022
• Date: 01 September 2022

https://doi.org/10.1177/0003603X221103198

The Antitrust Bulletin

2022, Vol. 67(3) 442 –450

© The Author(s) 2022

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DOI: 10.1177/0003603X221103198

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Article

Vertical Mergers that Induce Exit

David J. Balan*

Abstract

It is well understood that vertical mergers can create an incentive for the merged firm to foreclose

unintegrated rivals, and that one way this foreclosure can manifest itself is by driving an unintegrated

rival below its minimum viable scale and causing it to exit. The central claims of this article are (1) that

exit-inducing mergers are likely to be especially harmful because they result in the elimination of a

competitor and (2) that even a modest amount of foreclosure can induce exit if the rival was not too

far above its minimum viable scale before the merger. I argue that exit-inducing mergers merit explicit

treatment in a revised version of the DOJ/FTC Vertical Merger Guidelines, both because they are

harmful and because the possibility that they may occur with only modest foreclosure has important

implications for how they should be investigated.

Keywords

vertical mergers, foreclosure, exit, minimum viable scale, Vertical Merger Guidelines, VMG

I. Introduction

Whether and to what extent vertical mergers are harmful has been a subject of controversy for decades,

among both researchers and policy makers. Recently, the policy controversy has been especially sharp.

On June 30, 2020, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued

new Vertical Merger Guidelines (VMG).1 This was the first new formal agency guidance about vertical

merger enforcement since the DOJ’s 1984 Non-Horizontal Merger Guidelines. On September 15,

2021, the FTC withdrew from the new VMG and leveled criticism against them for being too lax.2

*Econ One Research, Inc., Washington, DC, USA

Corresponding Author:

David J. Balan, Econ One Research, Inc., Washington, DC 20005, USA.

Email: dbalan@econone.com

1103198ABXXXX10.1177/0003603X221103198The Antitrust BulletinBalan

research-article2022

1. U.S. Dep’t of Justice & Fed. Trade Comm’n, Vertical Merger Guidelines (2020), www.justice.gov/atr/page/file/1290686/

download.

2. Press Release, Fed. Trade Comm’n, Federal Trade Commission Withdraws Vertical Merger Guidelines and Commentary

(Sept. 15, 2021), www.ftc.gov/news-events/news/press-releases/2021/09/federal-trade-commission-withdraws-vertical

-merger-guidelines-commentary.