On December 18, 2023, The Federal Trade Commission and Antitrust Division of the Department of Justice concluded a nearly two-year process of updating both the horizontal and vertical merger guidelines with the release of the 2023 Merger Guidelines. The new Merger Guidelines align closely with the objective—expressed by both FTC and DOJ—to expand the types of enforcement actions seeking to prevent the formation of monopolies and to address existing monopolization by established firms in various industries. The Agencies have already begun referring to the new Guidelines in enforcement actions, such as the FTC’s administrative complaint to block the merger between Albertsons and Kroger. They have also signaled their intention to utilize the Guidelines as part of a continuing strategy of aggressive enforcement, including where mergers “may” harm competition rather than where they will “likely” harm competition. The Guidelines also reflect the Agencies’ renewed focus on key areas such as the labor market, potential opportunities for illegal bundling and/or tying practice, and mergers involving platforms.
The Content of the New Guidelines
In January 2022, FTC and DOJ each announced an initiative to evaluate potential changes to the Horizontal Merger Guidelines, which were first issued in 2010, and the Vertical Merger Guidelines, issued in 2020. Over the next year, a public comment period commenced, during which the Agencies heard from members of the public and conducted listening sessions that resulted in the July 19, 2023 Draft Merger Guidelines.
As the Agencies’ Fact Sheet on the Draft Guidelines notes, these are the first merger guidelines to include case citations, reflecting the effort of both Agencies to underscore that, despite the new approaches to enforcement they are employing, those strategies are based in law. The Fact Sheet also notes an increasing concern of the Agencies that the labor market and employees have been overlooked as market participants that are harmed by anticompetitive mergers.
After a further comment period and revisions, which included substantial changes to the wording of the Guidelines to clarify their advisory nature, streamlining the Guidelines from thirteen to eleven, and the addition of new case citations, the final 2023 Merger Guidelines were issued. Guidelines 1-6 describe distinct frameworks that are used to identify a merger that raises prima facie concerns; Guidelines 7-11 address application in specific settings.
Other notable changes in the new Guidelines include a return to the Herfindahl-Hirschman Index (HHI) threshold that existed before the 2010 Guidelines: namely, a post-merger HHI of 1,800 alongside an increase in HHI of 100 creates a structural presumption of lessened competition or tendency to create a monopoly. Furthermore, the new Guidelines reflect the increased focus on a merger’s impact on the labor market, including as a standalone basis to challenge a merger according to Guideline 10.
Application of the Guidelines to Section 2 Cases
The Guidelines note explicitly that, although they focus primarily on mergers that may violate Section 7 of the Clayton Act, the Agencies can also consider whether any provision of the Sherman Act, Clayton Act, or the FTC Act is violated either in addition to or as an alternative to Section 7.
In particular, Guideline 6, which states that mergers can violate the law when they entrench or extend a dominant position, provides insight on the Agencies’ view of monopolization, cautioning that such a merger may be a violation of Section 2 in addition to Section 7 of the Clayton Act. The aim of Guideline 6 is to focus scrutiny on mergers that seek to entrench or extend a dominant position through “exclusionary conduct, weakening competitive restraints, or otherwise harming the competitive process,” while also recognizing that firms may legitimately engage in growth and development as a consequence of increased competitive capabilities.
This goal traces back to United States v. Grinnell’s statement of the required elements of a Section 2 offense, and reflects the Agencies’ attempt to strike a balance in seeking to arrest “incipient” monopolies under Section 7 without strangling the growth and development of companies through legitimate and pro-competitive means. That balance can become particularly delicate when the conduct at issue involves competing for customers or seeking to scale up a business in order to take advantage of efficiencies when those changes involve limiting opportunities for rivals. For example, the Guidelines caution that a merger in which a company acquires a product that provides access to customer acquisition channels—for example, a social media platform—creates a scenario in which the acquiring firm can reduce would-be rivals’ access to additional scale or customers, and thus the ability to compete more effectively. However, the Guidelines distinguish between the “artificial acquisition of network participants that occurs directly as a result of the merger” and “future network growth that may occur through competition on the merits.”
In Guideline Section 2.6.B, the Guidelines also address post-merger actions that might raise monopolization concerns under Guideline 6, such as the possibility that a merged firm might seek to leverage its position by tying, bundling, conditioning, or otherwise linking sales of two products, or that a merged firm might take actions to induce customers of the dominant firm’s product to also buy a related product from the merged firm. Both are examples of conduct that could raise post-merger Section 2 concerns as well as pre-merger Section 7 concerns.
Guideline 6 also notes that the Agencies will consider the fact that firms may be willing to undertake costly short-term strategies to preserve their dominance, which may in turn reduce long-term incentives to improve products and services, as potentially entrenching or extending the position of a dominant firm. This guidance echoes some of the arguments FTC Chair Lina Khan has made, most notably in her well-known paper Amazon’s Antitrust Paradox, arguing that some of Amazon’s growth strategies have benefited consumers in the short run, to the detriment of the market in the long run.
In scrutinizing mergers that may entrench or preserve market dominance, the Agencies plan to consider more than “fixed factors” like product quality and the behavior of industry participants. Factors that will increase the likelihood of Agency scrutiny include strength and durability of the dominant firm’s market power; whether the result of the merger limits opportunities for rivals, reduces competitive constraints, or prevents competitive disruption; long-term impact on market power and industry dynamics; and the extent to which a merger relates to, reinforces, or supplements sources of dominance such as entry barriers.
Impact of the Guidelines on Antitrust Enforcement Going Forward
While the Guidelines are still new enough that they have not yet begun to appear in court decisions, they are making their way into complaints and other filings both by the Agencies and private parties. Notably, in a recent administrative complaint to block Albertsons’ acquisition of Kroger, FTC alleged that the deal will increase the price of groceries and decrease wages by eliminating the competition between Albertsons and Kroger for both customers and labor. The FTC complaint cites the new Guidelines to allege that the elimination of head-to-head competition between the two companies makes the proposed acquisition unlawful, and it relies on the new Guidelines’ HHI threshold in analyzing presumptively unlawful market concentration.
The increased scrutiny of monopolies in the Merger Guidelines also suggests that DOJ and FTC are seeking to prevent the formation of dominant companies more invested in preserving the status quo than competition, which Assistant United States Attorney General Jonathan Kanter recently described in his remarks at the 22nd International Conference on Competition as “gatekeeper” companies. Gatekeepers, in AAG Kanter’s view, are often platforms that “write the rules, establish the field and referee competition,” but that also participate as players in the field, which creates scenarios where “the incentives to tilt the scales in their own direction to preserve long-term market power can be overwhelming.” In particular, Kanter warned that gatekeeper platforms like big tech firms “pay a premium to hire inventors, but then under develop and under deploy their inventions,” thus stifling rather than sponsoring disruptive innovation, and that such conduct will be addressed by new guidelines such as Guideline 9, under which the Department will pay careful attention to “competition between platforms, competition on a platform, and competition to displace the platform.”
FTC and DOJ cases against companies that the Agencies view as “gatekeepers” also shed light on how certain characteristics or business practices of a company highlighted in the Guidelines may raise potential competition concerns beyond the context of mergers. For example, in the FTC’s recent lawsuit against Amazon, the Agency alleges that Amazon utilizes its unique position as a platform providing services both to buyers and sellers of products to engage in anti-discounting and coercive tying of Prime Eligibility to use its own fulfilment centers. These allegations track the same concerns that the Merger Guidelines seek to address not only in Guideline 6, but also in Guideline 9, which involves evaluation of multi-sided platforms based on their distinctive characteristics, and Merger Guideline 10, which addresses potential concerns around actions that substantially lessen competition for creators, suppliers, and providers.
AAG Jonathan Kanter also commented that he’s already heard “from the defense bar that our new merger guidelines have made it into corporate boardrooms,” and have resulted in executives considering the Guidelines “before a deal was even struck, instead of the other way around.” However, some companies who have already been targeted by the Agencies for enforcement seem prepared to challenge the Guidelines and the Agencies’ new approach in court rather than backing down, often arguing that the Agencies have failed to show that the challenged conduct will actually harm consumers. Albertsons and Kroger have asserted in public comment that their merger is necessary to compete with companies like Walmart and Amazon in the retail market, and that blocking the merger will raise grocery prices and hurt workers by boosting the prominence of non-unionized retailers like Walmart, Costco, and Amazon. Similarly, Amazon argued in its motion to dismiss the FTC’s complaint that the FTC fails to show that customers have been injured by increased prices, either for a particular product or across the economy as a whole. These cases will both present courts with the opportunity to weigh in on whether the Agencies’ more sweeping view of what constitutes anticompetitive harm is a viable legal theory.
Overall, the Merger Guidelines reflect a continuation of the Agencies’ priorities on more affirmative and aggressive enforcement and the full utilization of the potential arguments available to them under existing case law, particularly with respect to both the formation and existence of monopolies. Both pre- and post-merger conduct is now subject to heightened government scrutiny in concentrated markets; what remains to be seen, however, is how courts will respond to the new Guidelines and the Agencies’ strategies arising out of them.
