On June 30, 2020, the Department of Justice and a divided Federal Trade Commission finalized new Vertical Merger Guidelines applicable to acquisitions and mergers that combine firms or assets at different stages of the same or different supply chains. The finalized Guidelines are part of a broader effort to clarify the agencies’ procedures regarding merger reviews and chiefly address the relative lack of transparency that challenged many potential applicants under the now-repealed 1984 Non-Horizontal Merger Guidelines. The new Vertical Merger Guidelines also mark a shift toward analyzing the pro-competitive effects of vertical mergers, although the finalized version lacks a safe harbor provision included in earlier drafts.
Primarily, the new Guidelines clarify existing practice regarding merger reviews, illustrate the analyses the agencies apply during merger reviews, and provide illustrative examples of certain theories of harm the agencies consider during merger reviews. In particular, the new Guidelines:
- identify conditions under which the agencies are unlikely to conduct a detailed investigation of a vertical merger because the merger will not create or enhance the merged firm’s incentive or ability to harm rivals;
- provide illustrative examples of the “raising rivals’ costs” and “foreclosure” theories of harm commonly explored in merger reviews;
- emphasize that merger reviews analyze efficiency justifications;
- explain the elimination of double marginalization analysis, which is a frequent pro-competitive result of vertical transactions; and
- clarify that the agencies’ analytical techniques, practices, and enforcement policies apply to the vertical components of even predominately horizontal transactions.
The new Guidelines also explore the agencies’ approach to a variety of situations in which vertical concerns can manifest, including “strictly vertical” mergers within the same supply chain, “diagonal” mergers across competing supply chains, and vertical concerns in horizontal mergers.
Earlier drafts also would have included a safe harbor provision providing for lighter scrutiny for mergers between companies with less than a 20 percent share of the relevant market. That provision was dropped during the public comment period because of pushback from economists and Democratic lawmakers.
The two Democratic commissioners of the Federal Trade Commission voted against the finalized Guidelines, both issuing dissenting statements arguing that the Guidelines erroneously continued to treat vertical mergers as presumptively benign or beneficial. Democratic lawmakers also had called for the agencies to reopen the comment period to make the Guidelines stricter.