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|Lona Fowdur is a senior economist with EI and has analyzed the antitrust implications of several mergers and acquisitions in the energy and health care industries.|
On April 20, 2010, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) released for public comment proposed revisions to the Joint FTC/DOJ Horizontal Merger Guidelines that have been in effect since 1992. The proposed revisions aim to bridge the gap between the existing guidelines and current Agency practice and to reflect advances in economic knowledge and legal precedent from the past 18 years. The new draft Guidelines reduce the emphasis on the five-step evaluative approach that spanned market definition, competitive effects, entry, efficiencies, and failure. While retaining and expanding the discussion of each of these steps, the draft Guidelines favor a more flexible approach where the Agencies could use a variety of tools to analyze whether a merger would substantially lessen competition.
Under the draft Guidelines, market definition will no longer be the necessary first step to analyze competitive effects, and the delineation of a relevant market with precise boundaries will not always be required. Nevertheless, the draft Guidelines retain the hypothetical monopolist test for market definition. The draft Guidelines have also revised market concentration triggers upwards to better reflect current enforcement practices. For example, in the 1992 Guidelines, mergers were presumed to enhance market power if they increased the Herfindahl-Hirschman Index (HHI) by over 100 points to a post-merger level above 1800. The draft Guidelines require an increase of over 200 points to a level over 2500.
The draft Guidelines significantly expand the discussion of competitive effects. They highlight that the measurement of unilateral price effects need not rely on market definition, market shares, and concentration. The draft Guidelines discuss several analytic methods that may help assess unilateral effects, including diversion ratios, critical loss, upward pricing pressure, analysis of consumer switching patterns, and merger simulation. The revised section on unilateral effects also discusses markets characterized by auctions and competitive effects on innovation and product variety. The section on coordinated effects now includes an expanded discussion of factors that make a market more vulnerable to coordinated interaction and theories of potential harm from coordinated conduct.
The draft Guidelines include a new section that describes the types and sources of evidence that the Agencies might rely on. The types of evidence include experience from already consummated mergers and historical events, existing market shares and concentration levels, and the elimination of head-to-head competition or of “maverick” firms. New sections on powerful buyers, mergers between competing buyers, and partial acquisitions have also been included.