The US Department of Justice and the Federal Trade Commission recently issued an updated set of guidelines for “vertical mergers,” or mergers between companies at different levels of the supply or distribution chain.
The guidelines reflect the first update in nearly 40 years and largely reflect updates to existing case law and enforcement patterns, but they provide an instructive framework for managing antitrust risks related to vertical mergers, which also applies to other activities like information sharing among competitors.
Highlights of the New Vertical Merger Guidelines
The new guidelines largely summarize the current status of case law and enforcement, with much of the document describing generally the theories of antitrust analysis related to vertical mergers, rather than providing targeted guidance on what will or will not result in an enforcement action. While the draft published by the agencies earlier in 2020 proposed a “safety zone” that parties with less than 20% market share would not be subject to review, the final version removed that provision, indicated that the DOJ and FTC sought flexibility as it identifies enforcement targets. (In practice market shares below 50% are infrequently scrutinized.)
The guidelines emphasize that vertical integrations often have procompetitive effects, most commonly by reducing “double marginalization”—the profits made by each company in the chain—and that identifying this procompetitive benefit is the primary burden for merging companies.
The guidelines also discuss in some depth the main areas of concern in a vertical deal: foreclosure of new entrants, raising competitors’ costs, and using the merged firm’s customer information against rivals.
Insights for Information Sharing
Among other risks, the guidelines discuss the impact of gaining access to competitively sensitive customer information, which is a common result of mergers. The guidelines explain that, by gaining access to an upstream or downstream partner’s customer information, the merged company will have access to customer information that can reduce competition: “rivals may see less competitive value in taking procompetitive actions, . . . [or rivals] may refrain from doing business with the merged firm rather than risk that the merged firm would use their competitively sensitive business information” against them, potentially forcing them to use inferior suppliers. The guidelines also explain that a merger could enable an agreement to limit supply based on newly acquired access to supply agreement terms and related sales data.
Information sharing among competitors, whether directly or through a trade association, is a frequent target of antitrust scrutiny because of its propensity to facilitate collusive activities like price fixing and boycotts. The guidelines’ identification of these concerns reinforces the recognition that information sharing among competitors, even in limited ways like sharing supply volumes, could result in anticompetitive impacts and liability.
The new guidelines ultimately suggest that vertical mergers raise many of the same concerns that arise in horizontal agreements, and that the DOJ and FTC do not appear to be moving toward changes in its enforcement approach.