On April 20, 2010, the US Federal Trade Commission (FTC) released its much anticipated draft revisions to the Horizontal Merger Guidelines. The Guidelines are used by the FTC and Department of Justice (DOJ) to assess the likely competitive impact of mergers under US antitrust laws. They provide the framework for the federal merger review process, but have not been revised since 1997. The FTC will accept comments on the proposed revisions until May 20, 2010.
While the draft revisions give greater guidance on existing concepts, such as the “hypothetical monopolist” test, market definition, and competitive effects, they also add sections that propose new analytics for assessing competitive effects, power buyers, mergers between competing buyers, and partial acquisitions. Some of the more significant changes to the Guidelines are outlined below.
First, the Guidelines indicate that in analyzing the unilateral competitive effects of a merger involving differentiated products, the agencies will rely more on tests focusing on diversion of sales between the merging companies’ products and resulting price effects. While not defined by name, the Guidelines refer to the “Upward Pricing Pressure Test,” which attempts to quantify the degree to which the elimination of competition between the merging firms will cause prices to rise, offset by any efficiencies generated by the merger.
Second, the agencies have revised upward the industry concentration levels, as determined by the Herfindahl-Hirschman Index (HHI), that give rise to a presumption of anticompetitive effects resulting from the transaction. The HHI threshold for an unconcentrated market has been increased to below 1500 from below 1000, the threshold for a moderately concentrated market has been increased to below 2500 from below 1800, and the threshold for a highly concentrated market has been increased to above 2500 from above 1800.
In the past, mergers that increased the HHI by more than 100 points created a presumption of market power. Now, under the proposed Guidelines, mergers resulting in an increase in the HHI of less than 100 points “are unlikely to have adverse competitive effect,” mergers resulting in an increase of between 100 and 200 points “potentially raise significant competitive concerns and often warrant scrutiny,” and mergers resulting in an increase in the HHI of more than 200 points “will be presumed to be likely to enhance market power.”
Finally, the proposed revisions place less emphasis on the role of market definition in merger review. The agencies make explicit that “[m]arket definition is not an end in itself: it is one of the tools the agencies use to assess whether a merger is likely to lessen competition.” Accordingly, “[t]he agencies’ analysis need not start with market definition.”
These proposed changes to the Guidelines are significant for several reasons:
- While the long-term impact of the addition of the UPP test is uncertain, arguably, application of the test may result in an increase in the number of transactions that are reviewed by the agencies.
- The UPP test may also increase the burden on merging parties, given that a more fulsome submission of data to an agency may be required during the first thirty days of merger review.
- The proposed changes to HHI thresholds recognize that the prior concentration thresholds were an inadequate predictor of market power; the new thresholds are intended to more accurately reflect the agencies’ actual enforcement practices.
- The proposed increased reliance on evidence of competitive effects and decreased reliance on market definition may streamline the agencies’ analysis; however, they also endorse a long-held view of the agencies that evidence of anticompetitive effects obviates the need to define markets.