Thursday, November 11, 2010
Posted by D. Daniel Sokol
Herb Hovenkamp (Iowa Law) explains Merger Policy and the 2010 Merger Guidelines.
ABSTRACT: New Horizontal Merger Guidelines were issued jointly by the Antitrust Division and the Federal Trade Commission in August, 2010, replacing Guidelines issued in 1992 that no longer reflected either the law or government enforcement policy. The new Guidelines are a striking improvement. They are less technocratic, accommodating a greater and more realistic variety of theories about why mergers of competitors can be anticompetitive and, accordingly, a greater variety of methodologies for assessing them.
The unifying theme of the Horizontal Merger Guidelines is to prevent the enhancement of market power that might result from mergers. The 2010 Guidelines state that “[a] merger enhances market power if it is likely to encourage one or more firms to raise price, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives.” The focus on enhancement of market power is not limited to price. Both the 1992 and 2010 Guidelines expressed a concern about mergers that might restrain innovation, but the emphasis in the 2010 Guidelines is greatly expanded.
The agencies are increasingly concerned about excessive reliance on market definition mechanisms that are, at best, rough approximations of reality. This increases the relative weight that will be given to other factors. That is not to suggest that the Agencies will not employ technical methodologies. Indeed, the economic methodologies for delineating markets have become more technical and precise over time, thanks in large part to economists that have been working on merger analysis, whether independently or under the aegis of one of the Agencies.
Rather, the Guidelines indicate a broader range of approaches. Under the 2010 Guidelines market definition essentially plays two roles: “First, [it] helps specify the line of commerce and section of the country in which the competitive concern arises. . . . Second, [it] allows the Agencies to identify market participants and measure market shares and market concentration.” Market definition (and the measuring of market shares and concentration) is no longer an end in itself, though it is “useful to the extent it illuminates the merger’s competitive effects.” The 2010 Guidelines also place a heavier emphasis on direct evidence of competitive effects in defining markets: “[e]vidence of competitive effects can inform market definition, just as market definition can be informative regarding competitive effects.”
This essay attempts to integrate the 2010 Guidelines into merger enforcement policy in the United States, highlighting the most important differences between the approach taken in the 2010 Guidelines and that taken by both previous Guidelines, the enforcement agencies, and the courts.