On Aug. 19, 2010, the Department of Justice (DOJ) and Federal Trade Commission (FTC) released the final version of the 2010 Horizontal Merger Guidelines. These revisions, marking the first major overhaul to the 1992 Horizontal Merger Guidelines, reflect the DOJ and FTC’s shift toward a more fact-specific horizontal merger analysis and de-emphasize the importance of defining a relevant market. These new guidelines are intended to shine more light on how these antitrust agencies will decide whether or not to challenge a merger or acquisition between competitors.
The 2010 Guidelines “better reflect” the agencies’ current horizontal merger evaluation practices, according to Christine Varney, Assistant Attorney General in charge of the DOJ’s Antitrust Division. Most significantly, the 2010 Guidelines reduce the agencies’ focus on defining the relevant market and instead focus on a “fact-specific process” applying a “range of analytical tools” to the available evidence. Under the 2010 Guidelines, an analysis of the competitive effects of a merger does not necessarily begin with a definition of the relevant market. The relevant market is “useful to the extent” it highlights the merger’s competitive effects, but “is not an end in and of itself.” The 2010 Guidelines enumerate categories of relevant and reliable evidence and the sources of such evidence bearing on the competitive effects of the merger. Of particular relevance to the agencies is evidence the merging firms created in the normal course of business and not prepared as advocacy pieces.
Importantly, the 2010 Guidelines upwardly revise the agencies’ Herfindahl-Hirschman Index (HHI) thresholds, which provide the agencies with a measure of the relevant market’s concentration.1 The 1992 Guidelines deemed a market with a HHI of less 1,000 “un-concentrated;” a market with a HHI between 1,000 and 1,800 as “moderately concentrated;” and a market with a HHI over 1,800 as “highly concentrated.” Under the 2010 Guidelines, a market with a HHI of less than 1,500 is deemed “un-concentrated;” a market with an HHI between 1,500 and 2,500 is “moderately concentrated;” while a market with an HHI above 2,500 is “highly concentrated.” By increasing the HHI threshold for un-concentrated markets, and decreasing the size of “highly concentrated” markets, the agencies may now devote less scrutiny to certain business combinations that previously would have received more significant regulatory review.
The 2010 Guidelines expand upon the hypothetical monopolist test and its application in evaluating horizontal mergers. The test assumes that a profit-maximizing business with a monopoly over a product would impose a “small but significant and non-transitory increase in price” (SSNIP) on one or more products in the relevant market. The Guidelines discuss a multitude of factors evaluated by the agencies when calculating a SSNIP value, but do not establish a SSNIP tolerance level. The hypothetical monopolist test will be used “to the extent possible given the available evidence.”
The 2010 Guidelines simplify the agencies’ evaluation of barriers to entry for the relevant market. If the barriers to entry are low and other firms are able to undertake an expansion, then any anti-competitive effects a merger are significantly reduced. In addition, the 2010 Guidelines formally address the agencies’ evaluation of mergers between competing buyers and the corresponding increase in buying power.