Recommendations and Comments on the Draft Vertical Merger Guidelines

AbstractThis article offers a practical guide to analyzing vertical mergers using the general approach to input foreclosure and raising rivals’ costs that is described in the 2020 Vertical Merger Guidelines that were issued by the U.S. Department of Justice and the Federal Trade Commission. The step-by-step analysis described here draws lessons from how that theory of harm played out in the lone vertical merger case that has been litigated by the antitrust agencies in recent decades: the 2018 challenge by the Department of Justice to the merger between AT&T and Time Warner. I testified in court as the DOJ’s economic expert in that case. I explain here how to quantify the increase in rivals’ costs and the elimination of double marginalization that are caused by a vertical merger and how to evaluate their net effect on downstream customers. I also explain how this economic analysis fits into the three-step burden-shifting approach that the courts apply to mergers under Section 7 of the Clayton Act. Based on my experience in the AT&T/Time Warner case, I identify a number of shortcomings of the 2020 Vertical Merger Guidelines.

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The New Vertical Merger Guidelines: Muddying the Waters

Review of Industrial Organization ◽

10.1007/s11151-021-09824-z ◽

2021 ◽

Author(s):

Michael A. Salinger

Keyword(s):

Federal Trade Commission ◽

Department Of Justice ◽

Potential Harm ◽

Merger Guidelines ◽

Vertical Merger ◽

Potential Competition ◽

Dominant Firms ◽

Static Pricing ◽

Vertical Mergers

AbstractThe new U.S. Department of Justice and Federal Trade Commission Vertical Merger Guidelines focus on how vertical mergers are likely to affect static pricing incentives. While vertical mergers can create incentives to increase prices, they can also provide incentives to decrease prices. Which of the possible outcomes is likely to occur depends on details that are generally difficult to measure. Potential competition between dominant firms, the theory of potential harm to competition that the 1984 Department of Justice Merger Guidelines stressed, remains a more compelling rationale for blocking vertical mergers than the likely effect on static pricing incentives.

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