On December 18, 2023 the Federal Trade Commission (FTC) and Department of Justice (DOJ) (“the Agencies”) released the 2023 Merger Guidelines (the Merger Guidelines). The substance of the new guidelines does not stray significantly from the Agencies’ Draft Merger Guidelines published in July 2023, and contains most of the same expanded theories of harm first laid out there by the Agencies.

On a structural level, the finalized guidelines appear to have incorporated some of the feedback raised by public comments on the July 2023 draft. The new guidelines:

• Assert throughout that structural presumptions and evidence establishing a prima facie case that a merger may substantially lessen competition or tend to create a monopoly are rebuttable;
• Incorporate into the main portion of the document the discussion of the analytical, economic, and evidentiary tools used by the Agencies to implement the guidelines and consider rebuttal arguments;1 and
• Provide more examples to illustrate the concepts and theories described in the guidelines.

Below is an overview of the key themes and enforcement priorities enumerated in the new Merger Guidelines.

The Merger Guidelines represent a significant overhaul and expansion of federal merger enforcement

Like the draft guidelines, the new Merger Guidelines begin with a series of high-level principles the Agencies are using to identify mergers that may raise concerns. These eleven guidelines spell out the Agencies’ expanded theory of merger enforcement, and address skepticism of offsetting considerations such as efficiencies or failing firms:

• Guideline 1: Mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market.
• Guideline 2: Mergers can violate the law when they eliminate substantial competition between firms.
• Guideline 3: Mergers can violate the law when they increase the risk of coordination.
• Guideline 4: Mergers can violate the law when they eliminate a potential entrant in a concentrated market.
• 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.
• Guideline 6: Mergers can violate the law when they entrench or extend a dominant position.
• 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.
• Guideline 8: When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
• Guideline 9: When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform.
• Guideline 10: When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers, creators, suppliers, or other providers.
• Guideline 11: When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.

The Merger Guidelines include 11 principles, having incorporated two draft guidelines elsewhere in the final document:

• Draft Guideline 6, a standalone guideline regarding vertical mergers and foreclosure, is incorporated into new Merger Guideline 5; and
• Draft Guideline 13, a catch-all guideline stating that the analyses included in the guidelines are “not exhaustive,” and that “the Agencies have in the past encountered mergers that lessen competition through mechanisms not covered” in the main text of the guidelines, is included in the new Merger Guidelines in the form of an unnumbered addendum at the end of Section 2.2

Vertical transactions (Guideline 5)

Continuing a theme from the draft guidelines, the Merger Guidelines further deemphasize the distinction between the Agencies’ treatment of horizontal and vertical mergers, a clear break from past practice when the Agencies published separate guidance addressing horizontal and vertical transactions. The heightened focus on vertical transactions mirrors the Agencies’ recent merger enforcement record, which in the past five years has included a sharp uptick in challenges to vertical transactions that in prior years were far less likely to be litigated.

As mentioned above, the Merger Guidelines eliminate the standalone guideline from the draft guidelines on vertical mergers.3 Instead, the new Guidelines address the Agencies’ approach to vertical transactions—as well as other non-horizontal and non-vertical transactions—as part of Guideline 5, which describes the potential illegality of mergers that limit access to products or services that rivals use to compete. Guideline 5 includes a discussion of how the Agencies will address issues related to foreclosure in vertical transactions, specifically with respect to assessing a merged firm’s ability and incentive to substantially lessen competition by limiting access to any “related product,” defined as “any product, service, or route to market that rivals use to compete in that market.”4

The draft guidelines included as examples of foreclosure: denying rivals access to the related product or service, worsening the terms on which rivals can access the related product or service, or delaying access to product improvements or information relevant to making efficient use of the product. The new Merger Guidelines add to these the following activities: denying dependent rivals access to some features of the related product, limiting interoperability, degrading the quality of complements, providing less reliable access, and tying up or obstructing routes to market. The Merger Guidelines also state that, given the “range of ways” that the merged firm could use its ability to limit access to the related product, the Agencies will focus on the “overall risk that the merged firm will do so” and will not necessarily identify which precise actions the merged firm would take to lessen competition.5

In addition to foreclosure considerations, the Merger Guidelines also state that, if following a merger “rivals would continue to access or purchase a related product controlled by the merged firm post-merger, the merger can substantially lessen competition if the merged firm would gain or increase visibility into rivals’ competitively sensitive information.”6 This point was included in the draft guidelines, however referred to the merged parties’ “access” to rivals’ competitively sensitive information. This change in language is likely not just stylistic; it may indicate an expansion of the scope of conduct that the Agencies will consider as evidence that a merger is likely to substantially lessen competition under Guideline 5.

Structural presumptions (Guideline 1)

Guideline 1 in the Merger Guidelines includes the following rebuttable structural presumptions for horizontal mergers:

With respect to vertical mergers, the Merger Guidelines deemphasize slightly the presumption in the draft that a “foreclosure share” above 50 percent was sufficient in and of itself to presume a merger may substantially lessen competition.7 The new Merger Guidelines move this point to a footnote, and describe the 50 percent threshold as more of an inference than a presumption: “[t]he Agencies will generally infer, in the absence of countervailing evidence, that the merging firm has or is approaching monopoly power in the related product if it has a share greater than 50% of the related product market. A merger involving a related product with share of less than 50% may still substantially lessen competition, particularly when that related product is important to its trading partners.”8

Mergers that entrench or extend a dominant position (Guideline 6)

The Merger Guidelines state that the Agencies will consider whether a merger may entrench or extend a firm’s dominant position in new markets, and if the effects of such a merger may be to substantially lessen competition or tend to create a monopoly. The Agencies will also evaluate whether the merger may extend the dominant position into new markets, which may also violate Section 2 of the Sherman Act. The Agencies will seek to prevent those mergers that would entrench or extend a dominant position through exclusionary conduct, weakening competitive constraints, or otherwise harming the competitive process.

The Merger Guidelines walk away from the lofty goal set in the draft for challenging mergers that may entrench or extend a dominant position. While the draft stated that the goal of merger enforcement in an already-concentrated market should be to “seek to preserve the possibility of eventual deconcentration,”9that language is noticeably absent from the final version of Guideline 6.

Instead, the 2023 Merger Guidelines state that the Agencies will determine whether a firm has a dominant position “based on direct evidence or market shares showing durable market power.”10 The new Guidelines eliminate the presumption in the draft guidelines that the Agencies will consider a firm to already have a dominant position if it possesses at least 30 percent market share.”11 The new Guidelines state that the Agencies will consider the extent to which “the persistence of market power can indicate that entry barriers exist, that further entrenchment may tend to create a monopoly, and that there would be substantial benefits from the emergence of new competitive constraints or disruptions.”12

When considering a merger involving a dominant firm, the Agencies will evaluate the sources of that dominance, “focusing on the extent to which the merger relates to, reinforces, or supplements these sources.”13 The Merger Guidelines also note that even if a merger results in short-term benefits to some market participants, the Agencies may still consider the transaction to cause long-term harm to competition: “[i]f the ultimate result of the merger is to protect or preserve dominance by limiting opportunities for rivals, reducing competitive constraints, or preventing competitive disruption, then the Agencies will approach the merger with a heightened degree of scrutiny[.]”14

In addition, the Agencies will evaluate the following factors to assess whether the merger will raise barriers to entry or competition and entrench the dominant position of a merging firm in the relevant market by examining if the merger will:

• Increase switching costs associated with changing suppliers, making it more difficult for customers to switch away from the dominant firm’s products or services;
• Interfere with the use of competitive alternatives, such as services that allow customers to work with multiple providers of similar or overlapping bundles of products and services; or
• Deprive rivals of scale economies or network effects that can limit the ability of rivals to improve their own products and compete more effectively.

The Agencies will also assess whether the merger will eliminate a nascent competitive threat to the dominant firm that could grow into a significant rival. The Guidelines expand on the definition of “nascent competitive threat” included in the draft guidelines15to include firms with “niche or only partially overlapping products or customers”16 that can still grow into longer-term threats to a dominant firm by adding features or serving additional customers segments. The Merger Guidelines reiterate that the Agencies will also assess whether the elimination of a “nascent threat” violates Section 2 of the Sherman Act.17

The Guidelines also state that the Agencies will look at whether a merger could “enable the merged firm to extend a dominant position from one market into a related market, thereby substantially lessening competition in the related market.”18 In addition to concerns about a merged firm leveraging its position by tying, bundling, conditioning, or otherwise linking sales or two products (which is a significant extension of the scope of past guidelines), the Guidelines state that a merged firm may be able to gain dominance in the related market if it takes actions to induce customers of the dominant firm’s product to also buy the related product from the merged firm.

Trends towards consolidation (Guideline 7)

The Merger Guidelines explain that the Agencies examine “industry consolidation trends” to determine whether a merger presents a threat to competition. The new Guidelines cite Supreme Court precedent from the 1960s19to support the Agencies’ evaluation of a trend toward concentration in an industry as part of a broader analysis of industry consolidation trends.”20 The Guidelines also state that the Agencies consider trends towards vertical integration as part of this analysis, and describe situations where the bargaining leverage gained by a merged firm encourages other firms in the industry to consolidate “to obtain countervailing leverage, encouraging a cascade of further consolidation.”21

Potential competition theories (Guideline 4)

The Merger Guidelines consider a merger between two potential market entrants—even if they do not have a commercialized product in the market or an existing presence in the relevant geographic market as potentially resulting in a substantial lessening of competition—the same way it will consider a merger between an established incumbent and a potential market entrant. In addition, the Guidelines state that the acquisition of a party that is perceived as a potential entrant—even absent any plans or consideration of any plans to enter the market— may substantially lessen competition because the acquisition of a perceived potential entrant can eliminate competitive pressure. According to the Guidelines, “because concentrated markets often lack robust competition, the loss of even an attenuated source of competition such as a potential entrant may substantially lessen competition in such markets.”22

Series of acquisitions (Guideline 8)

The Merger Guidelines explain that “a firm that engages in an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines” may violate the antitrust laws.23 The new Guidelines also note that these patterns of transactions may violate Section 2 of the Sherman Act and Section 5 of the FTC Act.24 The Agencies will evaluate the series of acquisitions as part of an industry trend (Guideline 7), or evaluate the overall pattern or strategy of serial acquisitions by the acquiring firm (Guideline 8). Citing to the 1962 Supreme Court decision in U.S. v. Brown Shoe, the new Guidelines attempt to justify analyzing “individual acquisitions in light of the cumulative effect of related patterns or business strategies.”25

The approach laid out in the Merger Guidelines reflects recent messaging by the Agencies citing concerns about private equity “roll-ups” in the health care industry26 and other sectors27 involving a series of smaller acquisitions, none of which on their own meets the Hart-Scott-Rodino (HSR) merger filing thresholds. The new Guidelines underscore the Agencies’ view that these transactions may harm competition when considered together, and should be evaluated accordingly.

Multi-sided platforms (Guideline 9)

The Merger Guidelines address mergers involving multi-sided platforms, which “can threaten competition, even when a platform merges with a firm that is neither a direct competitor nor in a traditional vertical relationship with the platform.”28 The Guidelines include specific metrics for evaluating mergers involving multi-sided platform29 that consider “competition between platforms, competition on a platform, and competition to displace the platform.”30 The Guidelines also state that the Agencies may challenge a transaction involving a multi-sided platform even when the transaction harms competition only on one side of the multi-sided platform.

Labor market competition (Guideline 10)

The Merger Guidelines confirm that labor considerations are integral to the Agencies’ merger review investigations. Guideline 10 states that “a merger between competing buyers may harm sellers just as a merger between competing sellers may harm buyers,”31 and the Agencies will use the same tools to analyze the effects of a merger of buyers, including employers as buyers of labor. In addition to workers, the Agencies will also consider whether a merger involving competing buyers will substantially lessen competition for creators, suppliers, or other providers.

The Guidelines explicitly reject potential efficiency arguments relating to labor cost reductions, stating that “if the merger may substantially lessen competition or tend to create a monopoly in upstream markets, that loss of competition is not offset by purported benefits in a separate downstream product market. Because the Clayton Act [is applicable to] any line of commerce and in any section of the country, a merger’s harm to competition among buyers is not saved by benefits to competition among sellers.”32

Partial ownership/minority interests (Guideline 11)

With respect to partial acquisitions, the Merger Guidelines state that the Agencies may assess the post-acquisition relationship between the parties and the independent incentives of the parties outside of the acquisition to determine whether a partial acquisition may substantially lessen competition. Factors the agencies may consider include whether the partial acquisition:

• Gives the partial owner the ability to influence the competitive conduct of the target firm through a voting interest or specific governance rights;33
• Reduces the incentive of the acquiring firm to compete because it may profit through dividend or other revenue sharing even when it loses business to the rival; or
• Gives the acquiring firm access to non-public, competitively sensitive information from the target firm that can enhance the ability of the target and partial owner to coordinate their behavior and make other accommodating responses faster and more targeted.

The Guidelines state that “cross-ownership and common ownership can reduce competition by softening firms’ incentives to compete, even absent any specific anticompetitive act or intent.”34

Rebuttal evidence

The Merger Guidelines include a section dedicated to rebuttal evidence, noting that “factors pertinent to rebuttal depend on the nature of the threat to competition or tendency to create a monopoly resulting from the merger.”35 They explain that the Agencies apply “legal tests established by the courts” when assessing the following categories of rebuttal defenses.

Failing firms

The failing firm defense applies when the assets to be acquired through a transaction would imminently cease playing a competitive role in the market even absent the merger. In assessing a failing firm defense, the Agencies will consider whether the parties have provided sufficient evidence to meet three requirements established by the Supreme Court: (1) that the failing firm would be unable to meet its financial obligations in the near future; (2) prospects for reorganization of the failing firm are “dim or nonexistent”; and (3) the company acquiring the failing firm is the only available purchaser.36

The Merger Guidelines briefly address in a footnote the Agencies’ treatment of “failing division” defenses. The new guidelines state that the Agencies generally do not “credit claims that the assets of a division would exit the relevant market in the near future unless: (1) the division has a persistently negative cash flow on an operating basis, and such negative cash flow is not economically justified for the firm by benefits such as added sales in complementary markets or enhanced customer goodwill; and (2) the owner of the failing division has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its assets in the relevant market and pose a less severe danger to competition than does the proposed transaction.”37

Entry and repositioning

The Merger Guidelines note that the Agencies will consider rebuttal arguments that a reduction in competition resulting from the merger would induce entry or repositioning in the relevant market, preventing the merger from substantially lessening competition or tending to create a monopoly in the first place. Specifically, the Agencies will evaluate whether entry induced by the merger will be “timely, likely, and sufficient in its magnitude, character, and scope to deter or counteract the competitive effects of concern.”38

Procompetitive efficiencies

The Merger Guidelines state that the Agencies “will not credit vague or speculative claims” that evidence of procompetitive efficiencies shows that no substantial lessening of competition is threatened by the merger.39 The Agencies also will not credit alleged benefits outside of the relevant market if they would not prevent a lessening of competition in the relevant market. Consistent with past practice, the Agencies consider evidence related to efficiencies that is developed prior to a merger challenge as “much more probative than evidence developed during the Agencies’ investigation or litigation.”40

In assessing whether procompetitive efficiencies are cognizable, the Agencies will evaluate whether:

• The merger will produce competitive benefits that could not be achieved without the merger under review;
• The benefits are verifiable;
• Within a short period, the benefits will prevent the risk of a substantial lessening of competition in the relevant market; and
• Any benefits claimed result from the anticompetitive worsening of terms for the merged firm’s trading partner.

In addition, the Guidelines state that cognizable efficiencies that would not prevent the creation of a monopoly cannot justify a merger that may tend to create a monopoly, and the Agencies will not credit efficiencies if they reflect or require a decrease in competition in a separate market.

Looking Ahead

As anticipated, the 2023 Merger Guidelines are a significant departure in scope and substance from prior iterations of the merger guidelines. They reaffirm that the Agencies are likely to rely on new theories of harm to challenge transactions that might not have been challenged in the past. The new Guidelines also amplify recent themes in merger enforcement: increased deal uncertainty for parties, greater scrutiny of a broader set of mergers, lengthier merger reviews, and likely delays to closing. It remains to be seen, however, whether the courts will adopt the Agencies’ expansive theories of harm. Thus far, the Agencies’ litigation track record has been mixed at best.