In brief

On 18 December 2023, the Antitrust Division of the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) (collectively, “Agencies”) jointly issued their highly anticipated final version of the 2023 Merger Guidelines (“Guidelines”). The issuance of the Guidelines follows the Agencies’ release of draft guidelines in July and the conclusion of a public notice-and-comment period. As discussed in our previous alert, the Guidelines set out how the Agencies assess whether mergers and acquisitions threaten anticompetitive harm in violation of US antitrust laws.  

Most notably, the newly issued Guidelines retained the lower thresholds for establishing presumptions of anticompetitive harm — including if the merger gives the combined firm more than 30% market share. Additionally, the Guidelines outline a holistic approach for analyzing vertical mergers.

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Key takeaways 

In their press releases, the Agencies describe the Guidelines as a “[c]ulmination of a nearly two-year process of public engagement and reflect[ion] [of] modern market realities, advances in economics and law, and the lived experiences of a diverse array of market participants”. The key takeaways are: 

• Sets lower concentration thresholds for presuming that a horizontal merger is unlawful. The Agencies lowered the Herfindahl-Hirschman Index (HHI) thresholds, which measure concentration and are used to establish presumptions that a transaction will lessen competition. Returning to market-concentration thresholds that were applicable decades ago, the Guidelines find mergers presumptively unlawful if: (1) the post-merger HHI is 1,800 and there is a change of 100 from pre-merger HHI levels; or (2) the post-merger share is 30% and the HHI changes by 100 from pre-merger HHI levels.
• Outlines various approaches for analyzing vertical mergers. The Guidelines outline two main approaches for analyzing vertical mergers: (1) the Agencies will evaluate whether the merged firm has an “ability and incentive to foreclose rivals”; or (2) the Agencies will look to “industry factors and market structure” to infer anticompetitive effects. The Guidelines include a range of factors that the Agencies will consider in applying each test (such as substitutes, competitive significance of an input, barriers to entry, market structure, trend toward vertical integration, etc.), but they do not detail how these factors will be applied in practice. Notably, the Agencies removed their draft proposal establishing a presumption of anticompetitive harm where a transaction results in a vertical integration that accounts for a share of 50% or more in a related market. 
• Signals that 50% market share by itself could be suggestive of “monopoly power”. The Guidelines note that “the Agencies will generally infer, in the absence of countervailing evidence, that the combined firm has or is approaching monopoly power in the related product if it has a share greater than 50%”. While set out in a footnote relating specifically to vertical mergers, it can be read to suggest that the Agencies will apply a more aggressive standard to finding monopoly power and potentially evaluating more mergers under a monopolization theory.   
• Maintains skepticism towards efficiencies although efficiencies are still accepted as rebuttal evidence. Although they do acknowledge that efficiencies can be used to “rebut” the Agencies’ affirmative case in chief, the Guidelines show skepticism towards parties’ efficiency arguments in a proposed merger—stating that “possible economies … cannot be used as a defense to illegality”. As was the case before, efficiencies must continue to be merger-specific, verifiable, and likely to be passed on to consumers in the same affected relevant market to be credited.

In Depth 

As expected, the Guidelines substantially preserved the framework outlined in the draft guidelines. In this regard, the Guidelines continue to reflect the Biden Administration’s aggressive enforcement posture. The Guidelines place more emphasis on structural factors (e.g., number of firms in a market and concentration trends) than the 2010 Horizontal Merger Guidelines, which emphasized evaluating how transactions might result in changes in market power and thus harm consumers (e.g., higher prices, reduced output and innovation).

The Guidelines first set out the primary framework the Agencies will use to determine if a merger may substantially lessen competition or potentially create a monopoly (guidelines 1-6). The latter guidelines (7-11) provide an outline of unique applications and “rebuttal evidence” that the Agencies may consider. The Guidelines conclude by outlining the analytical, economic, and evidentiary tools and tests (e.g., Hypothetical Monopolist/Monopsonist Test (HMT), market definition, etc.) that the Agencies use to evaluate transactions.

Our summary of the 11 specific guidelines follows:  

1. Mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market. 

This confirms that the Agencies will focus significant attention on market shares and changes in concentration levels to establish a presumption that certain mergers are anticompetitive. The Guidelines set an HHI threshold and a market-share-based threshold for meeting the “structural presumption” that establish when the Agencies will presume a merger is anticompetitive:  

• Post-merger HHI threshold. HHI is greater than 1800 (in comparison to the 2010 Guidelines threshold of 2,500), and there is a change in HHI of greater than 100 points.  
• Post-merger market-share-based threshold. The merged firm has a post-merger share of greater than 30%, and there is a change in HHI of greater than 100 points.  

2. Mergers can violate the law when they eliminate substantial competition between firms. 

This guideline outlines factors for considering whether a merger will eliminate the substantial competition that may exist between the merging parties. In particular, “[t]he more the merging parties have shaped one another’s behavior, or have affected one another’s sales, profits, valuation, or other drivers of behavior, the more significant the competition between them”. The Agencies outlined several factors for evaluating substantial competition, including: 1) evidence of strategic deliberations or decisions in the ordinary course of business about the other merging party; 2) direct evidence of competition between the merging firms through an evaluation of recent relevant mergers, entry, expansion, or exit events; 3) customers’ willingness to switch between the merging firms’ products; 4) the impact that competitive actions by one of the merging firms has on the other; and 5) the impact of competition from one merging firm on the other’s actions, such as firm choices about price, quality, wages, or another dimension of competition.  

3. Mergers can violate the law when they increase the risk of coordination. 

Here, the Agencies outline both primary and secondary factors to calculate the risk of coordination among the remaining firms in a relevant market or to make existing coordination more stable or effective. The primary factors include: 1) if the market is highly concentrated; 2) if there have been previous actual or attempted attempts to coordinate; and 3) if the elimination of a firm with disruptive presence in the market (a “maverick”).  The secondary factors include: 1) increases in market concentration; 2) the transparency of a firm’s behavior to its rivals; 3) if a firm’s prospective competitive reward from attracting customers away from its rivals will be significantly diminished by its rivals’ likely responses; 4) if the merger results in the removal of a firm that has different incentives from most other firms in a market; 5) if participants in the market stand to gain more from successful coordination; and 6) whether structural market barriers to coordination are “so much greater in the [relevant] industry than in other industries that they rebut the normal presumption” of coordinated effects. As noted above, the final Guidelines add an analysis of “multi-market” contacts as part of an assessment of aligned incentives between merging firms. 

4. Mergers can violate the law when they eliminate a potential entrant in a concentrated market. 

When a market is more concentrated, the Agencies look to whether the merger eliminates a potential entrant, which the Agencies conclude could substantially lessen competition or tend to create a monopoly. 

5. Mergers can violate the law when they create a firm that may limit access to products or services that its rivals use to compete.  

In situations involving vertical mergers where a transaction gives one firm control over access to a product, service, or customers that its rivals use to compete, the Agencies will analyze 1) the ability and incentive to limit access to a input or customer necessary for rivals to compete; 2) analysis of the market structure, the merger’s purpose, and any trend toward vertical integration; 3) access to rivals’ competitively sensitive information; and 4) barriers to market entry resulting from threats or disruptions to rivals’ access to an input or customer.   

As noted above, the Agencies removed the market-share presumption that a vertical merger is anticompetitive based on the parties having a 50% share in a related product market. Nevertheless, this guideline provides that the Agencies can infer “monopoly power” in situations where one of the parties has a 50% share.  

6. Mergers can violate the law when they entrench or extend a dominant position. 

This guideline highlights the Agencies’ intention to undertake an analysis of whether a merger may entrench or extend an already dominant position or if the merger could enable the merged firm to extend a dominant position from one market into a related market.  

7. When an industry undergoes a trend toward consolidation, the Agencies will consider whether it increases the risk that a merger may substantially lessen competition or tend to create a monopoly. 

The Agencies will examine industry consolidation trends in applying the frameworks outlined in elsewhere in the Guidelines, such as: 1) trends toward concentration; 2) trends toward vertical integration; 3) arms race for bargaining leverage; and 4) multiple mergers.  

8. When a merger is part of a series of multiple acquisitions, the Agencies may examine the whole series. 

The Agencies will evaluate the history of a firm’s or industry’s acquisitions, both consummated and contemplated, to determine any potential impact to competition. This evaluation seemingly is driven by a concern for firms with multiple acquisitions in a single industry demonstrating “serial acquisitions,” which increase market concentration and reduce competition. 

9. When a merger involves a multi-sided platform, the Agencies examine competition between platforms, on a platform, or to displace a platform. 

Platforms are products or services that bring together two or more different groups of customers. The key issue that the Agencies will consider in analyzing a transaction that involves platforms includes how a merger affects competition between platforms (and in turn, access to platform participants), competition on a platform (including among competing participants), competition to displace the platform, denial of access to critical inputs (like data), and potential conflicts of interest that give a platform incentive to favor its own products or services relative to rivals.  

10. When a merger involves competing buyers, the Agencies examine whether it may substantially lessen competition for workers, creators, suppliers, or other providers. 

The Agencies will focus on labor markets to assess whether workers face a risk that the merger may substantially lessen competition for their labor or if the firms have any dominance in labor markets, examining the merging firms’ power to cut or freeze wages, slow wage growth, exercise increased leverage in negotiations with workers, or generally degrade benefits and working conditions without prompting workers to quit. 

11. When an acquisition involves partial ownership or minority interests, the Agencies examine its impact on competition. 

In evaluating acquisitions involving the acquisition of a non-controlling stake, the Agencies will evaluate whether the transaction gives the partial owner the ability to 1) influence the competitive conduct of the target firm, 2) reduce its incentive to compete, or 3) gain access to non-public, competitively sensitive information. The Guidelines also include a reference to “cross-ownership” and “common ownership,” which the Agencies suggest “can reduce competition by softening firms’ incentives to compete”.   

As a reminder, the Guidelines are not the law. Courts (not the Agencies), applying case precedents, ultimately decide whether a deal violates US antitrust law. While the analytical approach described in prior versions of the Agencies’ merger guidelines have been cited favorably by federal courts, it remains to be seen how these new revisions may be received in court.