On April 20, 2010, the Federal Trade Commission (FTC) released for public comment proposed revisions to the Joint FTC/DOJ Horizontal Merger Guidelines (“Guidelines”), which have not been substantially revised since 1992. The proposed revisions are necessary due to the differences between the current Guidelines and the federal antitrust agencies’ actual merger review practice, and are the product of public comment and a series of public workshops held over the last six months. The proposed Guidelines more accurately reflect the federal antitrust agencies’ current approach to horizontal merger analysis and enforcement, and in doing so provide better transparency into that practice.
Among the proposed changes are the following:
- The proposed revisions eliminate the five step-by-step approach to the merger guidelines, which started with defining the market and ended with determining the ease of entry and efficiencies; instead, the proposed Guidelines espouse a more holistic and flexible fact-based approach.
- The role of market shares and market concentrations are downplayed in a new section on “Evidence of Adverse Competitive Effects.” In addition to market shares and market concentration, the proposed revisions identify other sources of evidence to be used to predict the likely competitive effects of a merger, including “natural experiments” (e.g., empirical data assessing the impact of recent mergers, entry, or expansion in the relevant market), substantial headto- head competition between the merging parties, and the loss of a “maverick” firm in the market.
- Also significantly downplayed is the role of market definition in the merger review process. While still important, the proposed revisions suggest that other more direct forms of evidence, described above, may be more valuable to the merger analysis.
- The proposed revisions add a more thorough discussion of the agencies’ use of price discrimination theories (which examine the merged entities’ ability to exercise market power by selectively raising prices to a defined group of customers) in examining a merger’s possible adverse effects.
- The explanation of the “hypothetical monopolist,” or “SSNIP”, test used to define the relevant market has been expanded, including a discussion of the type of reliable evidence the agencies will look to in implementing the test (e.g., how customers have shifted purchases in the past in response to a price change, and data about the costs and delays incurred in switching such purchases).
- Market concentration levels have been updated (by increasing them) to more accurately reflect the agencies’ actual enforcement practices.
- The section on unilateral competitive effects has been significantly expanded, including a discussion of the importance of “diversion ratios” (which assess sales loss, due to an increase in price, to a second product) between the merging firms for determining unilateral price effects, and a discussion about the effects on innovation.
- The section examining entry conditions (as potentially mitigating the ability to exercise market power) has been simplified, with an emphasis on the actual history of entry into the relevant market.
- New sections discussing power buyers, mergers between competing buyers and partial acquisitions, have also been added.
Written comments to the proposed revisions are due to the FTC by May 20, 2010.