Recent enforcement failures highlight inherent difficulties with prospective antitrust review of vertical transactions. The lack of vertical enforcement guidelines, limited economic modeling, and substantiated efficiencies coalesce to hinder prospective enforcement efforts.

On April 12, 2019, in prepared remarks during the Hearings on Competition and Consumer Protection in the 21st Century, Federal Trade Commission (“FTC”) Commissioner Rebecca Slaughter advocated for the use of retrospective reviews of vertical transactions as a means to overcome the inherent difficulties with vertical enforcement. Among other things, Commissioner Slaughter argued that:

To the extent that retrospectives can help us improve our predictive tools and analysis or correct prior decisions, we need to do more of them. And given the increased complexity of analyzing vertical integration, I believe we should focus our resources on reviewing our enforcement decisions regarding vertical mergers.

Furthermore, if we make clear at the time a vertical transaction is cleared that it will be the subject of a future retrospective review, that may have the benefit of a disciplining effect on the merged firm. This may be unsatisfying from the academic perspective of looking for robust data, but I would be willing to assume that cost for the benefit of protecting competition.

The history of retrospective enforcement in the health care industry—and, in particular, prior successful retrospective challenges to certain hospital transactions—makes it all the more likely that Commissioner Slaughter’s views on the enforcement benefits of retrospective reviews will be adopted by the FTC.