Merger Guidelines to be Reviewed

The Department of Justice and the Federal Trade Commission recently began a review of the 1992 Horizontal Merger Guidelines. The purpose of the review will be to incorporate advances in economic thought and analytic methodology in the Guidelines and to ensure that the Guidelines reflect changes in agency practice and legal precedent that happened in the past seventeen years. The review will begin with a series of public workshops on the Guidelines. While the Agencies are open to suggestions on every aspect of the Guidelines, their main concerns are indicated by twenty questions that they released for comment. The Agencies have identified three broad areas that the review will focus on: market definition, market concentration and competitive effects.

In regards to market definition, the questions address the possibility of refining the hypothetical-monopolist approach and changing how critical loss analysis is performed. Comments are also invited regarding whether product markets should be defined on the basis of a collection of product substitutes versus successive consideration of “next-best” substitutes, and whether geographic markets should be based on the location of consumers rather than, or in addition to, that of producers. Further, the size of the price increase used in the hypothetical monopolist test will be reviewed.

Questions addressing market concentration concern possibly reevaluating the Guidelines’ HHI thresholds. The Agencies may also expand the discussion of how market shares are measured and interpreted. A particular concern is the significance of market concentration in cases involving unilateral effects and in markets with significant technological change.

Competitive effects related questions center on incorporating advances in the treatment of unilateral effects, including the case of markets with localized effects and auction mechanisms. The agencies also will consider the use of merger simulation models and the use of market shares as a proxy for diversion ratios. Additional questions concern price discrimination, price effects on large as opposed to small buyers, and non-price effects.

Some further questions elicit comments on the failing-firm section of the guidelines and on whether the Guidelines should discuss partial acquisitions and merger remedies. Also considered is the value of relying on illustrative examples, retrospective merger studies, natural experiments and customer surveys to predict competitive effects.

Whether the review will ultimately result in a thorough overhaul of the Guidelines or just a few minor changes is uncertain. Nonetheless, the review will have significant implications for merger policy.

Lona Fowdur recently joined Economists Incorporated after completing her Ph.D. in economics at Cornell University. Her work at EI has focused on antitrust analysis in the energy and health care industries.