FTC and DOJ Release New Merger Guidelines
On December 18, 2023, the Federal Trade Commission and U.S. Department of Justice (the “Agencies”) jointly released new Merger Guidelines (the “Guidelines”), setting forth the analytical framework the Agencies will use to review proposed mergers and acquisitions. The Guidelines combine and replace the existing 2010 Horizontal Merger Guidelines and 2020 Vertical Merger Guidelines in one document. The Guidelines signal a move from the existing consumer welfare standard, with changes intended to address “modern market realities,” including competition for labor, serial acquisitions, and competition within and among platforms.
The Guidelines include key concepts that the Agencies consider, highlighted below:
- The Guidelines emphasize that mergers raise a presumption of illegality when they significantly increase concentration in highly concentrated markets or further a trend toward concentration. The Guidelines take a stricter view of what constitutes a concentrated market, meaning the Agencies will challenge deals in industries with more competitors or lower market shares than in the past. Using the Herfindahl-Hirschman Index (“HHI”) as a measure of concentration, the Agencies point to markets with HHIs of 1,800 points as “highly concentrated.” This 700-point decrease from the prior guidelines essentially means that an industry with five firms of equal size (each possessing a 20 percent market share) will be considered “highly concentrated,” regardless of other competitive conditions or effects.1
- The Guidelines state that eliminating “substantial competition between firms” can make a merger illegal. The Agencies will look to competition specifically between the merging parties themselves, separate from the market as a whole, in order to determine whether “the merging parties have shaped one another’s behavior.” The Guidelines outline the indicators used to assess “substantial competition,” such as strategic deliberations or decisions; prior merger, entry, and exit events; customer substitution; and the impact of competitive actions on rivals.
- The Guidelines state that mergers can violate the law when they “increase the risk of coordination,” and that the Agencies will infer, subject to rebuttal evidence, that a merger may substantially lessen competition if the market is already concentrated or has a history of prior coordination. Additionally, although the concept of potential competition is not new, the Guidelines give potential competition greater weight by stating that mergers can violate the law when they “eliminate a potential entrant in a concentrated market.” The Guidelines clarify that actual and perceived potential competition are relevant and distinct theories from the possibility of entry defense in a merger review.
- The Guidelines state that mergers can violate the law when they entrench or extend a dominant position through exclusionary conduct, weakening competitive constraints, or otherwise harming the competitive process. For dominant companies, the Agencies will consider various factors to determine whether the transaction extends or entrenches that position even if the merger is neither horizontal nor vertical. The Agencies enumerate several examples of such behavior, including increasing barriers to entry or switching costs, depriving rivals of economies of scale or network effects, and eliminating nascent competitive threats, all of which show the Agencies intend to exercise greater flexibility to challenge transactions involving large market players.
- The Guidelines take a tougher stance on rollup or serial acquisition strategies and state that a firm may violate antitrust law when they engage in “an anticompetitive pattern or strategy of multiple acquisitions in the same or related business lines.” Whereas the Agencies have historically evaluated transactions on an individual basis, when a merger is part of a series of multiple acquisitions, the Agencies may evaluate the cumulative effect of the series of acquisitions on competition. The Guidelines state that the Agencies will also consider the firm’s history and any current or planned strategic incentives.
- The Guidelines discuss several other less common theories of harm: assessing whether mergers increase the risk that a firm will limit access to or degrade the quality of a product or service important to competition; assessing competition between platforms, on a platform, or to displace a platform, when examining multisided platform mergers; assessing effects on workers, creators, suppliers, or other providers when examining mergers involving buyers; and increasing scrutiny of minority interests and partial control.
Similar to the prior horizontal and vertical merger guidelines they replace, the Guidelines are not legally binding, nor are they changes to statutory text or precedent. They instead are intended to provide clarity and transparency into the Agencies’ methods to analyze transactions and markets. In comments released this week, Federal Trade Commission Chair Lina Khan stated that the Guidelines “reflect the new realities of how firms do business in the modern economy and ensure fidelity to statutory text and precedent.”
1 Antitrust lawyers and economists typically evaluate market concentration using the Herfindahl-Hirschman Index (“HHI”), a numerical scale between 0 (perfect competition) and 10,000 (monopoly) designed to show market concentration before and after a merger. Higher numbers generally indicate more concentrated markets, and thus mergers that warrant increased scrutiny or even an anticompetitive presumption. The Guidelines would lower the HHI threshold at which a market is considered “highly concentrated” (and presumptively unlawful) from 2,500 to 1,800, a level current guidelines characterize as “moderately” concentrated.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.