A Walk-through to the Merger Guidelines Released by the DOJ and FTC

On December 18, 2023, the Department of Justice and the Federal Trade Commission jointly released the finalized merger guidelines that serve as the basis for agencies to determine whether mergers violate antitrust laws.

Back in July 2023, the DOJ and FTC, collectively referred to as the Agencies, released draft guidelines. They received 30,000 comments from the public, which were incorporated into the draft, creating slight modifications to the draft before releasing the finalized version.

Take a closer look at the finalized merger guidelines in this article.

Guideline 1: Mergers Raise a Presumption of Illegality When They Significantly Increase Concentration in a Highly Concentrated Market

Market concentration often indicates how a merger might affect competition. In a highly concentrated market, a merger that removes a major competitor poses a significant risk of reducing competition or creating a monopoly. Therefore, a notable increase in market concentration can indicate that a merger lessens competition.

If concentration metrics exceed specific thresholds, it implies that a merger might eliminate substantial competition between the merging parties and foster increased coordination among the remaining competitors. Although this presumption of illegality can be contested, higher concentration metrics beyond these thresholds indicate a heightened risk to competition, necessitating more robust evidence to challenge or disprove the potential adverse effects on the market structure.

Guideline 2: Mergers Can Violate the Law When They Eliminate Substantial Competition Between Firms

The Agencies check the competition between the merging parties and examine whether the competition is substantial, as it can lead to the elimination of competition between the mergers.

In essence, a merger eliminates competition between the merging firms as they come under joint control. If there is substantial evidence of competition between the merging parties before the merger, it typically implies a potential reduction in competition. While changes in market structure can signal the risk of competitive harm, analyzing the existing competition between merging firms can reveal that a merger poses a threat to competition, independent of market share analysis.

Guideline 3: Mergers Can Violate the Law When They Increase the Risk of Coordination

The Agencies assess whether a merger increases the risk of anticompetitive coordination by examining primary and secondary factors, which may include highly concentrated markets, attempts to coordinate, elimination of mavericks, market concentration, market observability, etc.

In highly concentrated markets or those with a history of anticompetitive coordination, it is presumed, unless rebutted, that the merger may lessen competition. In markets that are not highly concentrated, the Agencies check whether specific facts indicate a higher risk of coordination beyond what market structure implies.

Guideline 4: Mergers Can Violate the Law When They Eliminate a Potential Entrant in a Concentrated Market

In a concentrated market, mergers can significantly reduce competition by preventing the entry of potential competitors, thereby hindering the possibility of new or increased competition in the future. Additionally, a merger can eliminate existing competitive pressure on other market participants, stemming from the perceived threat that one of the firms might enter. Both risks can coexist simultaneously.

Greater market concentration intensifies the negative impact on competition resulting from any missed potential entry and increases the likelihood of monopoly creation. Consequently, in mergers involving potential entrants, higher market concentration reduces the probability of entry, raising concerns.

Guideline 5: Mergers Can Violate the Law When They Create a Firm That May Limit Access to Products or Services That Its Rivals Use to Compete

When a merger creates a firm that limits access to a product or services that its rivals use to compete, the Agencies will examine the potential risk of the merged firm.

Mergers that involve products or services used by competitors to compete can pose a threat to competition in various ways, such as limiting rivals’ access to products or services, gaining or increasing access to rivals’ confidential information, or deterring rivals from market investment.

Guideline 6: Mergers Can Violate the Law When They Entrench or Extend a Dominant Position

The Agencies assess whether one of the merging firms holds a dominant position that the merger might strengthen and could lead to a monopoly. They also investigate whether the merger could extend this dominance leading to reducing the competition or creating a monopoly in another market.

The Agencies aim to prevent mergers that would solidify or expand a dominant position by engaging in exclusionary behavior, undermining competitive constraints, or causing harm to the competitive process.

Guideline 7: When an Industry Undergoes a Trend Toward Consolidation, the Agencies Consider Whether It Increases the Risk a Merger May Substantially Lessen Competition or Tend to Create a Monopoly.

The recent history and trajectory of an industry are crucial factors to consider when evaluating whether a merger poses a threat to competition. The Agencies would investigate whether a trend toward consolidation in an industry could amplify the competition concerns outlined in Guidelines 1-6.

Guideline 8: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series.

If a firm is engaged in an anticompetitive pattern of multiple acquisitions within the same or related business lines, it might violate Section 7 of the Clayton Act. The Agencies may assess such acquisitions as part of an industry trend or collectively evaluate the overall pattern or strategy of serial acquisitions under Guidelines 1-6.

Guideline 9: When a Merger Involves a Multi-Sided Platform, the Agencies Examine Competition Between Platforms, on a Platform, or to Displace a Platform.

Platforms offer products or services to distinct groups that can benefit from each other’s participation. This may pose a threat to competition, even when the merging entity is not a direct competitor. In assessing platform-related mergers, the Agencies apply Guidelines 1-6, considering market realities associated with platform competition.

Guideline 10: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers, Creators, Suppliers, or Other Providers.

A merger between competing buyers can harm sellers, similar to how a merger between competing sellers can harm buyers. Such a merger of competing buyers has the potential to significantly diminish competition by eliminating competition between the merging buyers or by increasing coordination among the remaining buyers. The Agencies assess whether a merger between buyers may lessen competition or create a monopoly by applying Guidelines 1-6.

Guideline 11: When an Acquisition Involves Partial Ownership or Minority Interests, the Agencies Examine Its Impact on Competition

In acquisitions, companies often come under common control, but the acquisition of less-than-full control can still significantly influence decision-making, potentially reducing competition. Acquiring partial ownership or minority interests may grant the investor various rights in the target firm, such as board appointments, access to sensitive information, and influence over operational and financial decisions. The Agencies are concerned with both cross-ownership, holding non-controlling interests in competitors, and common ownership, where individual investors hold non-controlling interests in firms with a competitive relationship affected by joint holdings.

Understanding the merger guidelines released by the DOJ and FTC is crucial for businesses navigating the complex landscape of antitrust regulations. By adhering to these guidelines, companies can ensure compliance and mitigate the risk of facing regulatory scrutiny.

Learn more about the future of antitrust merger enforcement at our webcast: Antitrust Merger Enforcement: What to Expect in 2024?