The Department of Justice (DOJ) and the Federal Trade Commission (FTC), collectively referred to as the Agencies, formally announced in September 2009 that they would explore the possibility of updating the Horizontal Merger Guidelines. To initiate the process, the Agencies requested public comments and held a series of public workshops seeking input about how the Agencies could harmonize the Guidelines with their current merger review practice, as well as ensure that the Guidelines reflect the legal and economic developments that have occurred since the Guidelines last significant revision in 1992.
In the fifth and final workshop on January 26, 2010, Assistant Attorney General Christine A. Varney acknowledged that there are areas where the Guidelines omit crucial considerations by the Agencies in the merger review process or inaccurately reflect enforcement. Closing the “gaps between the Guidelines and actual agency practice” is necessary to reduce uncertainty in business decisions and to ensure that courts are relying on accurate and comprehensive authority when adjudicating the validity of acquisitions under the antitrust laws.
Varney’s discussion principally focused on three “gaps” commonly identified by commentators and recognized by the Agencies that require revision:
- The Agencies do not mechanically apply the Guidelines’ five-step merger analysis (i.e., analyze sequentially (1) market and market shares, (2) potential adverse effects, (3) entry, (4) efficiencies and (5) failing firms). Rather, they apply the five-part framework flexibly and find certain factors to be more important in some cases and less in others.
- The Guidelines overstate the importance of Herfindahl-Hirschman Index (HHI) thresholds. Although a useful tool, the HHI is not “the key driver of enforcement decisions.”
- The Guidelines do not take into account significant developments in economic theory regarding unilateral effects that have occurred since 1992. In particular, the Guidelines provide insufficient discussion on the economic tools commonly used to analyze mergers of firms that sell differentiated products, such as diversion ratios, price-cost margins, win-loss reports, customer switching patterns, and views of competitors, customers and industry observers.
Varney concluded by noting other potential revisions that would improve the transparency of the Guidelines: (1) providing a more thorough discussion of targeted customers and price discrimination; (2) explaining that the Agencies normally assess market shares using recent or projected sales in the relevant market as well as identifying the conditions where other measures (e.g., capacity) may be used; (3) providing a more unified approach to the concepts of expansion, entry and repositioning of non-merging firms; (4) clarifying that “coordinated effects can arise through accommodating behavior among a small number or rivals without the necessity of reaching terms of coordination”; and (5) formally recognizing the beneficial effects of innovation.