On January 10, the Federal Trade Commission and Department of Justice released a draft of their long-anticipated vertical merger guidelines and withdrew their 1984 Vertical Merger Guidelines. Vertical mergers received a significant amount of attention during the FTC’s public hearings on competition and consumer protection policy, and FTC Chairman Joseph Simons indicated last fall that guidance was in the works.
The FTC vote to release the Draft Guidelines was 3-0-2, with Chairman Simons and Commissioners Phillips and Wilson voting in favor and Commissioners Chopra and Slaughter abstaining. Commissioners Chopra, Slaughter, and Wilson issued separate statements.
Key Elements of the Draft Guidelines. The Draft Guidelines state that the “principles and analytical frameworks used to assess horizontal mergers apply to vertical mergers” and recommend that practitioners read the draft guidelines “in conjunction with” the agencies’ Horizontal Merger Guidelines (“HMG”), which were last revised in 2010. In particular, the Draft Guidelines affirm that the HMG’s approach to market definition applies to vertical mergers.
Addressing issues that are more specific to vertical mergers, the Draft Guidelines identify two main types of unilateral effects associated with vertical mergers that may harm competition: (1) foreclosure and raising rivals’ costs (e.g., the merged firm may be able to increase prices or reduce quality to its rivals because it faces less competition); and (2) access to confidential information (e.g., the merged firm may acquire greater access to confidential information because it fills orders that had previously been split between two independent suppliers). In addition, the Draft Guidelines identify the possibility that vertical mergers will reduce competition through coordinated effects, e.g., by increasing the merged firm’s ability to detect cheating on a tacit coordination agreement.
The Commissioners’ Statements. In their separate statements, Commissioners Chopra and Slaughter applaud the withdrawal of the 1984 Vertical Merger Guidelines, which are “permissive” and “antiquated,” in Commissioner Chopra’s view. Commissioner Slaughter, however, criticizes the Draft Guidelines for, among other things, proposing an “effective safe harbor for firms with less than 20 percent market share.” Commissioner Chopra objects to issuing a draft without conducting a vertical merger retrospective and criticizes the Draft Guidelines’ use of economic models of harm that, in his view, do not take specific issues (e.g., digital market structure and IP rights into account).
Commissioner Wilson’s brief statement expresses her support for the Draft Guidelines and her expectation that commenters will provide a “great deal of input” on them.
Comments Due on February 11. Interested parties may file comments through February 11, 2020 via email to the FTC and DOJ. Kelley Drye Antitrust and Competition Practice Group Chair Bill MacLeod notes: “Comments are likely to be valuable here.”