On July 19, 2023, the Federal Trade Commission (FTC) and Department of Justice (DOJ) released for comment proposed joint merger guidelines which seek to replace the agencies’ vertical merger guidelines released in 2020 and horizontal merger guidelines released in 2010. The proposals introduce significant changes to both the ways in which the agencies define markets and competition, and the evidence and metrics they would use to assess a merger’s competitive effects.
Among the more significant proposed changes are the following:
They would materially change how relevant geographic and product markets are defined, and when to consider those markets “highly concentrated.”
Market definition: The proposals would significantly change how product and geographic markets within which competitive effects of a merger would be defined. Under current law, to define the boundaries of relevant product and geographic markets, the agencies apply the “hypothetical monopolist test,” in which firms or products that would prevent the merged firm from increasing price by a small but significant and non-transitory amount are considered to be within the “relevant market.” The agencies propose to include in this calculus not only price but other “terms” such as “quality, service, capacity investment, choice of product variety or features, or innovative effort,” raising the possibility that the agencies may exclude from the market rivals who could discipline overt attempts to increase price but not more opaque reductions in service, quality, or R&D efforts, to which consumers may be much less sensitive.
Market concentration: The current guidelines recognize that the anticompetitive effects of a merger generally increase in more concentrated markets in which fewer significant firms compete. The proposed guidelines would lower the standard for a “highly concentrated market” (a trigger for a presumption of a merger’s illegality) to a level that the current guidelines consider to be only a “moderately concentrated market.” In addition, the proposals would introduce a market share-based test as a trigger for raising an “impermissible threat of undue concentration,” when the merged firm’s market share will exceed 30 percent and concentration would increase modestly.
They would elevate the importance of potential competition, particularly in the context of serial acquisitions by firms pursuing consolidation as a strategy.
The proposed guidelines call for scrutiny of a firm’s consolidation strategy and prior practices when determining the competitive impact of an individual acquisition, in stark contrast to the current guidelines’ evaluation of an acquisition on its individual merits. The proposals would find that a trend of consolidation in the relevant industry or a series of multiple acquisitions by the acquiring firm could give rise to competitive effects in the transaction under review.
Moreover, although the DOJ and FTC have previously been concerned about preserving nascent competitors—those who are either poised to enter the market or are perceived to be so—the proposed guidelines further focus on nascent competition by evaluating evidence of the incumbent acquirer’s incentives and strategies for growth (either internally or through acquisitions). Even where a nascent threat to a firm is “uncertain and may take several years to materialize,” the proposed guidelines would view acquiring a nascent competitor as evidence that the acquirer may be entrenching itself as the dominant competitor.
They would elevate the importance of, and scrutiny applied to, mergers involving platforms, vertical acquisitions, and minority investments across competitors.
Multi-sided platforms. The proposed guidelines increase the scrutiny of mergers involving a multi-sided platform, or platforms which provide different products to different groups which benefit from the other group’s participation in the platform. The proposed guidelines suggest that mergers involving platforms may give rise to competitive effects even when the target firm lacks a clear vertical or horizontal relationship to the platform. The proposals therefore advocate consideration of effects between platforms, on the platform, or to displace the platform.
Vertical mergers. The proposals broaden the consideration of vertical effects to a transaction. Vertical mergers that confer a 50 percent market share of an input needed by the acquiring firm’s rivals (or less, pursuant to other conditions) or which may entrench a “dominant” market position will be assigned a rebuttable presumption of illegality. “Dominance” would exist when there is direct evidence that one or both of the merging parties (i) may raise price, reduce quality, or impose favorable terms due to their dominance, or (ii) hold at least 30 percent market share.
Acquisitions of minority stakes. The proposed guidelines would scrutinize the acquisition of minority positions in two or more competing entities to the extent that those positions permit the acquirer to influence the decision-making of the target firm, such as through appointing board members or voting on capital raises, or to obtain competitively sensitive information. The proposed guidelines reflect the DOJ and FTC’s concerns that influential investors may lessen the incentives of their portfolio companies to compete with one another, even in the absence of direct control over the actions of the companies. The proposed guidelines are a warning shot at investment companies and other entities that may seek to obtain a diverse portfolio of investments in an industry.
They would formalize the current DOJ and FTC focus on labor markets.
The proposed guidelines include a new explicit focus on the labor market and merging firms’ purchasing power as employers, and they reflect the Biden Administration’s fears that merging employers may leverage increased market power over labor markets to depress wages, benefits, and working conditions among their labor force. Critically, the proposals state that the FTC and DOJ will use the impact on the labor market as a stand-alone basis to challenge transactions.
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The proposals would dramatically change the way the DOJ and FTC formally review mergers and acquisitions, although many of the proposals reflect current practice at the agencies. Both agencies, along with others in the Biden Administration, have voiced concerns over mergers and acquisitions by the tech industry, private equity firms, powerful employers, and companies at different levels of the distribution chain. If adopted, several aspects of the proposed guidelines, such as the application of presumptive harm at lower levels of concentration and/or market share, overriding focus on labor markets, and focus on companies’ internal strategies and prior acquisition history as a basis for challenge, will certainly be tested in future agency court challenges to proposed mergers. Given very recent failures by the agencies to advance in court the principles behind some of the proposals, the revised guidelines may prove to be a poor predictor of a merger’s legality.
The comment period on the proposed guidelines will end on September 18th.
 Examples of a multi-sided platform include advertisement marketplaces, online merchants, social networks, and computer and mobile operating systems.
 E.g., vertical foreclosure concerns in UnitedHealth/Change Healthcare and potential competition concerns in Meta/Within.