Vertical mergers: The guidelines should discuss an additional theory of harm and the use of quantitative tests on ability to foreclose versus incentive to foreclose

September 18, 2023
publication paper

The US Department of Justice and Federal Trade Commission (the Agencies) discuss several types of mergers in the July 2023 Draft Merger Guidelines (the Draft). The Draft contains 13 guidelines, of which Guidelines 5 and 6 are particularly relevant to vertical mergers. Our comments focus on vertical mergers and thus pertain mainly to those two guidelines. Our comments have three principal purposes.

First, we suggest that the Agencies acknowledge a further theory of harm regarding vertical mergers (one that is established in the economic literature but not mentioned explicitly in the Draft).

Second, we lay out a recently-developed, practical, and transparent quantitative test (the “margin test”) that the Agencies can use to gauge whether the merged entity will have the ability to foreclose downstream rivals.

Third, we discuss vGUPPI tests that the Agencies can use to gauge the incentive to foreclose downstream rivals and explain how they fit with the recently-developed margin test on ability.

Read the comments here.