The workshop—along with separate programs hosted recently by the American Bar Association (ABA) Antitrust Law Section and the Centre for Economic Policy Research (CEPR)¹ —provided attendees with a more in-depth understanding of the Agencies’ intentions with respect to the structure and substance of the 2023 draft merger guidelines, and how enforcers may consider and incorporate public comments into their final draft.  Aviv Nevo, Director of the FTC Bureau of Economics, and Susan Athey, Chief Economist at the DOJ Antitrust Division, participated in all three of the programs, alongside a handful of other FTC and DOJ representatives² as well as private antitrust practitioners and economists. 

Athey, Nevo and the other FTC and DOJ panelists said that the Agencies are very interested in receiving comments from the public on the draft guidelines, noting that 1100 comments have already been submitted.  The deadline for public comment is September 18, 2023. 

Discussion

Below is a summary of some of the notable takeaways from the recent DOJ/FTC, ABA and CEPR programs.  For more information about what was included in the 2023 draft guidelines and potential implications for merger review, please see our Hogan Lovells client alert published on July 24, 2023. 

Draft guidelines shift focus from “market power” to whether a merger will “substantially lessen competition”

Athey explained that the draft guidelines are organized around the text of the Clayton Act, and that each of the thirteen guidelines is directly connected to a risk assessment framework focused on whether a merger or acquisition will “substantially lessen competition.”³ The drafters intentionally use “substantially lessen competition” rather than “market power” throughout the guidelines to be more in line with the Clayton Act. Athey noted that commenters have asked the Agencies to return to the language of “market power” employed in the 2010 Horizontal Merger Guidelines (the 2010 Guidelines). 

Athey stated that the risk assessment framework is intended to incorporate non-price factors into the Agencies’ merger analysis, while acknowledging that “it can be difficult to model all of the different ways that competition can play out.”  While a prediction that a merger result in prices increasing by a certain percentage point will remain significant to the Agencies’ risk assessment, Athey reiterated that costs to competition may go beyond price and “can be hard to articulate.”  The draft guidelines incorporate a number of non-price factors, and describe how the Agencies’ review process will include an evaluation of how mergers affect the labor markets;⁴ could eliminate potential or perceived new entrants into the relevant market;⁵ involve merging parties that are engaged in “serial acquisitions” deemed part of a “pattern or strategy of multiple acquisitions”;⁶ and involve multi-sided platforms connecting buyers and sellers.⁷

Market definition

Athey said that the Agencies have been explicit that there are multiple paths to defining relevant markets, which reflects case law “where practical indicia has carried the day in terms of market definition.”⁸ Athey stated that the hypothetical monopolist test⁹ can be used to show if markets have been too narrowly defined by the Agencies.  Athey considers market definition to be more important if the Agencies are looking at different products and focusing on more narrow markets. However, Athey reiterated that the unifying theme of the guidelines is the risk assessment of a merger substantially lessening competition. 

Nevo commented that in cases where a market is difficult to define, instead of trying to bend over backwards to define the market, the Agencies will look at direct evidence of competitive effects instead. 

Rebuttal framework to remain in place

Athey, Nevo and their colleagues took pains to assure attendees that all of the presumptions in the 2023 draft guidelines are rebuttable (as was the case in the 2010 guidelines). Nevo acknowledged the need to make this clearer in the final version of the guidelines. Athey explained that the 2023 draft guidelines employ the Baker Hughes burden-shifting framework whereby the Agencies will present a prima facie case discussing how competition might be harmed by a merger, and the parties can then present a rebuttal by showing efficiencies that are passed on to customers. Athey clarified that rebuttals should be framed in terms of substantially lessening competition, and that concepts of specificity and verifiability are still applicable to the Agencies’ review of efficiencies arguments (i.e. any benefits proposed by the parties must be merger-specific and verifiable). 

The 2023 draft guidelines contains the following rebuttable structural presumptions:

• Guideline 1 – Mergers should not significantly increase concentration in highly concentrated markets.¹⁰  Mergers resulting in a Herfindahl-Hirschmann Index (HHI) of greater than 1,800 and a change in HHI greater than 100 points will cause undue concentration and may substantially lessen competition or tend to create a monopoly;

• Guideline 6 – Vertical mergers should not create market structures that foreclose competition.  If a vertical merger results in a foreclosure share¹¹ of above 50%, that alone is a sufficient basis to conclude that the effect of the merger may be to substantially lessen competition; and

• Guideline 7 – Mergers should not entrench or extend a dominant position.  A firm will be considered dominant for the purpose of determining whether a merger will entrench or extend a dominant position if one of the merging firms possesses at least 30% market share.

David Lawrence, Policy Director at the DOJ Antitrust Division, flagged language in Section IV of the draft guidelines noting that “Supreme Court precedent also examines whether ‘other pertinent factors’ presented by the merging parties nonetheless ‘mandate[] a conclusion that no substantial lessening of competition [is] threatened by the acquisition.’ ”  Lawrence advised that advocates may point to “other pertinent factors” when presenting a rebuttal case, and that factors will be considered “pertinent” depending on which guideline is triggered and is the basis for the Agencies’ concern. 

Economics still matters

The FTC and DOJ panelists addressed criticism¹² of the Agencies’ decision to put the bulk of the discussion about the various economic tools, methods and data that the Agencies will use into the Appendix of the guidelines.  Nevo assured attendees that the Appendix is an “integral part of the guidelines,” and the details therein are no less important than what is included in the rest of the document.  Nevo justified the Agencies’ decision to organize the document in this way, and noted that the Appendix is meant to be applicable to all thirteen of the guidelines, and that the discussions of economics were included in the Appendix to avoid duplication throughout the rest of the document.   Nevo called the focus on the placement of the economics discussion in the Appendix to be “superficial,” and stated that economics will be used more, not less, under the draft guidelines.  Athey agreed that since economics “needs to serve all sections of the guidelines” to support harm to competition, market definition, and rebuttal, it made sense to include it as an Appendix.

Looking Ahead

The FTC and DOJ stressed throughout the various workshops that the Agencies are keen to receive comments on the draft guidelines from the public, and are intending to incorporate changes into the final guidelines.  The extent and nature of those changes remains to be seen. Athey encouraged commenters to comment on what they would like to change and what they would like to keep from the draft guidelines as the Agencies finalize the document.  Two additional merger guideline workshops¹³ will be hosted by the Agencies later this year to continue dialogue with the public.