FTC’s Rushed Broadside Against Vertical Mergers Increases Uncertainty And Chills Innovation
During today’s FTC open meeting—which follows only 2.5 business days for public comments—the Commission will vote on whether to rescind the 2020 Vertical Merger Guidelines that were jointly issued by the DOJ and FTC. Here’s what you should keep in mind:
— The FTC rushed to propose the unilateral withdrawal of the Vertical Merger Guidelines, a joint effort of the FTC and DOJ
— Reverting the Vertical Merger Guidelines to the outdated 1984 guidelines will increase uncertainty
— Vertical mergers are generally pro-competitive and pro-innovation
The FTC rushed to propose the unilateral withdrawal of the Vertical Merger Guidelines, a joint effort of the FTC and DOJ.
The 2020 Vertical Merger Guidelines distilled 35 years’ worth of FTC and DOJ experience and economic analysis and drew from well-informed public comments, highlighted former FTC Chairman Joseph Simons, Commissioner Noah Joshua Phillips, and Commissioner Christine S. Wilson. “These Guidelines replace the framework for analyzing non-horizontal mergers contained in the Department of Justice’s 1984 Merger Guidelines. They incorporate the agencies’ accumulated knowledge from over 35 years of experience investigating and challenging anticompetitive nonhorizontal mergers, as well as economic analysis on the potential harms and benefits of these types of mergers. They also benefit from well-informed public comments in response to our Competition and Consumer Protection Hearings for the 21st Century and to the draft Vertical Merger Guidelines put out for comment on January 10, 2020.”
The FTC’s approach to changing Vertical Merger Guidelines is inconsiderately rushed, warns the Washington Legal Foundation. “Like Rome, the Vertical Merger guidelines weren’t built in a day, far, far from it. But this #FTC will dismantle them with barely 48 hours notice.”
Reverting the Vertical Merger Guidelines to the outdated 1984 guidelines will increase uncertainty.
The 2020 Vertical Merger Guidelines offer “greater transparency, predictability, and consistency” based on “sound economic principles,” according to comments submitted by the Global Antitrust Institute. “We commend the agencies for proposing [Vertical Merger Guidelines (VMGs)] that largely achieves the objective of offering greater transparency, predictability, and consistency to the relevant stakeholders. The proposed VMGs also generally advance the second objective of articulating an analytical framework for vertical mergers based upon sound economic principles. Specifically, the proposed VMGs reject presumptions of illegality or legality in favor of a case-by-case approach. Overall, the agencies deserve credit for highlighting the relevant factors in assessing vertical mergers and for not attempting to be overly aggressive in advancing untested merger assessment tools or theories of harm.”
Repealing the Vertical Merger Guidelines will revert the merger enforcement to the 1984 guidelines, reminds Daniel A. Crane, Frederick Paul Furth Sr. Professor of Law at the University of Michigan Law School. “FTC seems poised to rescind the 2020 Vertical Merger Guidelines at its next open meeting (Sept 15). I don’t get it. If you want to revise the guidelines, revise them, but by repealing you’re going back to the 1984 guidelines. What’s the point?”
Democrats agree that the 1984 guidelines are “woefully out-of-date,” and Democratic FTC Commissioner Slaughter acknowledged that the 2020 guidelines had advantages over the 1984 version, writes Aaron Nicodemus of Compliance Week. “Withdrawing the guidelines, instead of simply reworking them, would apparently leave the FTC falling back on the 1984 version that even Democrats admit is woefully out-of-date.”
— “Democratic FTC Commissioner Rebecca Kelly Slaughter abstained from voting to release the revised guidelines, even though she said they had plenty of advantages and benefits over the 1984 version.”
Vertical mergers are generally pro-competitive and pro-innovation.
Limiting the possibility of vertical mergers “creates risk for innovation and entrepreneurship,” reminds D. Daniel Sokol, law professor at the USC Gould School of Law. “As a matter of policy, there should be vertical merger enforcement when the facts justify such an intervention. However, from a policy perspective, vertical mergers—including tech mergers—present fewer problems than horizontal mergers and should be treated differently in terms of overall merger policy. When antitrust agencies, judges, and legislators limit the possibility of vertical mergers as an exit strategy for start-up firms, it creates risk for innovation and entrepreneurship.”
Vertical mergers usually lead to “lower prices and more choice” in the immediate term, and increased “productivity and living standards” in the long term, writes Robert D. Atkinson, President of the Information Technology and Innovation Foundation. “Over the last several decades, academics and courts have often acted under the premise that vertical mergers pose less of a risk to competition than horizontal mergers. ITIF believes that this assumption is correct: the immediate effect of vertical mergers is usually lower prices and more choice. Over time this increases productivity and living standards. ITIF believes that antitrust decisions should be based on a careful investigation of the facts governing the specific markets involved.”
Deviating from the consumer welfare standard, including banning all vertical mergers, “would make consumers worse off,” notes former FTC Commissioner Joshua Wright. “Critics of the consumer welfare standard have proposed steps including that we ban all vertical mergers, make per se unlawful horizontal mergers based solely upon a firm’s size—i.e., return to the ‘big-is-bad’ enforcement style of early antitrust—and even prohibit Amazon from selling groceries. These proposals come despite that the economic evidence makes it quite clear that such moves would make consumers worse off.”