Draft FTC/DOJ Vertical Merger Guidelines Get Array of Suggested Edits
Treating the purchase of what would have been a competitor as anti-competitive and warning of regulatory overreach were among suggestions groups made to DOJ and the FTC as the agencies consider new vertical merger guidelines. Comments on the draft were due Wednesday, and the agencies plan workshops March 11 and 18 (see 2002030052). The agencies didn't publicly post comment submissions.
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We filed a Freedom of Information Act request to get all the filings; we requested them from the two agencies and an FTC response went to our spam folder. Those included in this report were publicized by the filers.
Twenty-six Democratic and Republican state attorneys general said the guidelines should include "widely recognized theories of harm" such as crushing nascent or potential competition, the necessity of two-tier entry, regulatory evasion and treatment of bargaining leverage. They asked for more explicit guidance on how the federal agencies will assess and demonstrate harm, such as the types of evidence they might rely on, their burden of proof and what constitutes a prima facie case. They said the guidelines should identify non-price harms such as reduced output, degraded quality, loss of access to services and reduced innovation. Signers included Democrats Xavier Becerra from California, Colorado's Phil Weiser, Washington, D.C.'s Karl Racine, Brian Frosh from Maryland, New York's Letitia James and Virginia's Mark Herring. GOP AGs included Ohio's Dave Yost and Douglas Peterson from Nebraska.
The proposed safe harbor should have a higher market share threshold and clearer language to minimize deterrence of pro-competitive deals, said the American Bar Association Antitrust Law Section. It sought clarification of analysis for defining “related product” markets and recognition that eliminating double marginalization is a uniquely vertical takeover benefit.
The suggested guidelines should include rebuttable anti-competitive presumptions and apply to all non-horizontal deals, said the New America Open Technology Institute and Public Knowledge. One of those presumptions should be a dominant platform presumption that a takeover is anti-competitive if a dominant platform buys a firm that probably would have become a competitor or a firm that's a competitor in an adjacent market, they said. They made suggestions for when a transaction eliminates a potential entrant into a concentrated market or if it eliminates a maverick firm.
Calling vertical integration "an essential aspect of the Digital Revolution," TechFreedom warned that DOJ and FTC would worsen the problem of antitrust being politically weaponized or would stifle innovation with guidelines that are too vague and give too much discretion to regulators in policing vertical transactions, essentially shifting the burden of proof. It said the FCC deal process is an example of how the transaction process can "coerce ... concessions often completely unrelated to the harms alleged to flow from the merger."
Confusion might come from guidelines' suggested safe harbor laying out when a pact likely would be found to be benign, especially basing the safe harbor on market share instead of on better metrics like market concentration, the American Antitrust Institute said. Inexplicably missing are "key theories of harm" such as regulatory evasion and customer foreclosure, and they don't consider how vertical consolidation can be a barrier to entry, AAI said. The draft gives too much deference eliminating double margins efficiency, "which has gained in favor among conservative economists ... but which remains controversial and unproven," it said.
The guidelines could use clarification on how the agencies will assess unilateral concerns like foreclosure and raising rivals' costs, the Free State Foundation said. FSF said dominance of a firm might raise legitimate anticompetitive concerns, but it should be looked at via a case-by-case review.