Economic tools for analyzing vertical mergers in healthcare

May 1, 2020

The Federal Trade Commission and the Department of Justice recently released Draft Vertical Merger Guidelines (VMG), which describe the framework under which the federal antitrust agencies propose to evaluate vertical mergers. “Vertical” mergers involve firms that operate at different levels of the supply chain and are distinguished from “horizontal” mergers, which combine firms that compete at the same level of the supply chain. In vertical mergers, economists differentiate upstream firms, which produce an input or provide a service that may be used or relied upon by other firms, from downstream firms, which sell their products to end consumers. We use these “upstream” and “downstream” labels throughout this article.

The VMG are short and not tailored to one industry or supply chain. While the VMG outline general principles that the agencies intend to use in evaluating vertical mergers, they lack specifics.

In this article published in CPI Antitrust Chronicle, the authors discuss the relevance of the VMG to healthcare mergers — where vertical transactions and investigations by the FTC and DOJ are common — and provide an overview of some economic tools that comport with the guidance offered by the VMG. While not limited to use in healthcare, these tools may be used by practitioners to quickly assess whether a vertical merger may give rise to antitrust concerns.