When released in draft form for public comment on January 10, 2020, the Vertical Merger Guidelines (“Vertical Guidelines”) included a safety zone indicating that “the Agencies [i.e., the U.S. Department of Justice and the Federal Trade Commission] are unlikely to challenge a vertical merger where the parties to the merger have a share in the relevant market of less than 20 percent, and the related product is used in less than 20 percent of the relevant market.” The Vertical Guidelines, in draft form, went on to clarify that “[he purpose of these thresholds is not to provide a rigid screen to separate competitively benign mergers from anticompetitive ones. Rather, they provide one way to identify some mergers unlikely to raise competitive concerns and some others for which it is particularly important to examine other competitive factors to arrive at a determination of likely competitive effects.”
However, and as we indicated in our last Antitrust Byte, the safety zone for vertical mergers was conspicuously omitted from the final version of the Vertical Guidelines, issued on June 30, 2020. But why? A 20 percent threshold is clearly conservative, and consistent with safety zone thresholds contained in the Statements of Antitrust Enforcement Policy in Health Care. The Agencies’ Horizontal Merger Guidelines also provide useful markers indicating, among other things, that “mergers involving an increase in the [Herfindahl-Hirschman Index] of less than 100 points are unlikely to have adverse competitive effects and ordinarily require no further analysis.” Furthermore, the 20 percent figure is far below thresholds deemed judicially necessary for liability in relevant cases challenging vertical transactions, such as exclusive dealing arrangements.
The lack of any economic or judicial rationale for the omission of this safety zone will blunt the effectiveness of the final Vertical Guidelines as a counseling tool, particularly for the health care industry, where vertical integration has become so prevalent. Equally as concerning is whether other antitrust safety zones are being eyed for elimination.
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