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The 2010 Horizontal Merger Guidelines at Ten: A View from the FTC’s Bureau of Economics

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Abstract

Ten years after the adoption of the 2010 revisions to the joint DOJ/FTC Horizontal Merger Guidelines, our experience in the Bureau of Economics at the Federal Trade Commission leads us to conclude that the revised Guidelines have contributed positively to the Commission’s merger enforcement program. In this paper, we discuss some of the more significant differences between the 2010 Guidelines and the preceding version, and we identify specific cases that illustrate the continued relevance of practices and techniques that are highlighted in the revised Guidelines.

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Notes

  1. US Department of Justice and Federal Trade Commission (2010). Horizontal Merger Guidelines, §1, available at https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf.

  2. For more information about how the categories and sources of evidence that are identified in Section 2 of the revised Guidelines were in use prior to 2010, see Federal Trade Commission and US Department of Justice (2006).

  3. Horizontal Merger Guidelines, §2.1.2.

  4. For a discussion of the empirical analysis that was performed in the Office Depot/OfficeMax investigation, see Brand et al. (2014). For the Commission’s statement about its decision to close this investigation, see https://www.ftc.gov/sites/default/files/documents/closing_letters/office-depot-inc./officemax-inc./131101officedepotofficemaxstatement.pdf.

  5. For additional discussion of the Staples/Office Depot case and the role of economic analysis in it, see Ashenfelter et al. (2006).

  6. For additional discussion of this case, see Balan et al. (2015). For the Commission’s administrative complaint in this case, see https://www.ftc.gov/system/files/documents/cases/141216veriskcmpt.pdf.

  7. Horizontal Merger Guidelines, §2.1.3.

  8. See CDK and Auto/Mate Complaint (2018), available at https://www.ftc.gov/system/files/documents/cases/docket_no_9382_cdk_automate_part_3_complaint_redacted_public_version_0.pdf.

  9. For a comparison of the win/loss data in the two transactions, see the demonstrative slides used in the testimony of the Commission’s testifying economic expert in the Staples/Office Depot transaction, located at https://www.ftc.gov/system/files/documents/cases/170216staples_redacted_shapiro_demonstrative.pdf at pp. 55–57. FTC, et al., v. Staples, Inc. and Office Depot, Inc. complaint, see https://www.ftc.gov/system/files/documents/cases/151207staplesoffdepot_pt3cmpt.pdf.

  10. Tronox and Cristal Complaint (2017), see https://www.ftc.gov/system/files/documents/cases/docket_no_9377_tronox_cristal_part_3_administrative_complaint_redacted_public_version_12072017.pdf.

  11. Tronox and Cristal Complaint (2017), ¶ 22.

  12. Tronox and Cristal Complaint (2017), ¶ 4.

  13. At several points, this article discusses information presented during confidential merger investigations. These discussions are based on personal experience of one or more of the authors. In cases where no public statements were issued, the authors are unable to provide a formal citation.

  14. See https://www.ftc.gov/about-ftc/bureaus-offices/bureau-economics/best-practices.

  15. For additional discussion of these issues, see Baker (1987) and Werden and Froeb (1993).

  16. For additional detail, see Coe and Krause (2008).

  17. For additional discussion of the use of price co-movement tests in Tronox/Cristal, see Greenfield et al. (2019).

  18. See Shapiro (2010).

  19. Horizontal Merger Guidelines, §9.

  20. Horizontal Merger Guidelines, §6.1.

  21. See, e.g., Shapiro (1996).

  22. Horizontal Merger Guidelines, §4.1.3.

  23. While not involving differentiated products, the recent Tronox litigation is an example of a case where disagreement about the level of margins was more prominent. FTC economists disagreed with the merging parties about the level of the margins in the industry and with their claim that the margins did not match those predicted by the Cournot model. FTC economists challenged the parties’ inclusion of a number of items in their marginal cost calculations that they thought should be classified as fixed costs. After recalculating the margins using only variable costs, the FTC’s testifying economist concluded that the observed margins were close to the predicted margins from the Cournot model. See Greenfield et al. (2019).

  24. Smucker and Wesson Complaint (2018), see https://www.ftc.gov/system/files/documents/cases/d09381_smucker_conagra_part_3_administrative_complaint_redacted_public_version.pdf.

  25. As noted in the Complaint in this case, in the broad CV oil market, Smucker and Wesson would have a combined market share of at least 35 percent, while in the narrower branded CV oil market the parties would have a combined share of more than 70 percent. See Smucker and Wesson Complaint.

  26. The 2010 Guidelines describe the use of “the value of diverted sales…measured in proportion to the lost revenues attributable to the reduction in unit sales resulting from the price increase” in its discussion of upward pricing pressure that is captured by the GUPPI. See Horizontal Merger Guidelines §6.1 at fn. 11. See also Moresi (2010).

  27. Otto Bock Healthcare North America, Inc. Initial Decision (2019) at 38–39, see https://www.ftc.gov/system/files/documents/cases/docket_9378_initial_decision_public_5-7-19.pdf.

  28. Werden (1996).

  29. See Werden (1996, p. 411, Eq. 6).

  30. Following its analysis of two alternative proposed mergers that involved “dollar stores,” the Commission issued a statement that clarified the role that GUPPIs had played in the investigation. See https://www.ftc.gov/system/files/documents/public_statements/681901/150714dollarstoresstatement.pdf.

  31. For more details about the analysis of hospital mergers at the FTC, see Farrell et al. (2011).

  32. See the discussion of the Commission’s economic expert’s formal auction model in the Memorandum Opinion, Federal Trade Commission, et al., v. Sysco Corporation, et al. (2015, pp. 89–92) at https://www.ftc.gov/system/files/documents/cases/150623syscomemo.pdf.

  33. See Greenfield et al. (2019).

  34. Horizontal Merger Guidelines, §6.4.

  35. See CDK and Auto/Mate Complaint (2018), ¶56.

  36. See DraftKings, Inc. and FanDuel Limited Complaint (2017), available at https://www.ftc.gov/system/files/documents/cases/docket_no_9375_draftkings_fanduel_part_3_complaint_final_redacted_public_version.pdf. See also Jones et al. (2018).

  37. See Illumina, Inc. and PacBio Complaint (2019), available at https://www.ftc.gov/system/files/documents/cases/d9387_illumina_pacbio_administrative_part_3_complaint_public.pdf.

  38. Illumina, Inc. and PacBio Complaint (2019), ¶73.

  39. Horizontal Merger Guidelines, §4.

  40. In this set of six hospitals, two were owned by Advocate, and four were owned by Northshore.

  41. See FTC and State of Illinois v. Advocate Health Care and Northshore University HealthSystem Opinion and Order (2017), p. 7, citing Tenn Report. Available at https://www.ftc.gov/system/files/documents/cases/advocate_health_care_opinion_granting.pdf.

  42. Advocate Health Care and Northshore University HealthSystem Complaint (2015), ¶ I.4.

  43. See FTC and State of Illinois v. Advocate Health Care and Northshore University HealthSystem Opinion and Order (2017), p. 9.

  44. “When applying the hypothetical monopolist test to define a market around a product offered by one of the merging firms, if the market includes a second product, the Agencies will normally also include a third product if that third product is a closer substitute for the first product than is the second product.” Horizontal Merger Guidelines, §4.1.1.

  45. See Otto Bock Healthcare North America, Inc. Initial Decision (2019), ¶454–¶471.

  46. Compare 2010 Horizontal Merger Guidelines, §4.1.4 with 1992 Horizontal Merger Guidelines, §1.12. For 1992 Guidelines, see https://www.justice.gov/archives/atr/1992-merger-guidelines.

  47. See FTC, et al. v. Sysco Corporation, et al. (2015). Also, see FTC, et al. v. Staples Inc. and Office Depot, Inc. (2015).

  48. For more details, see Hanner et al. (2016).

  49. FTC, et al. v. Staples Inc. and Office Depot, Inc. Complaint (2015), ¶ 41. The court’s Opinion in this case set the threshold at $500,000. See FTC, et al. v. Staples Inc. and Office Depot, Inc. Memorandum Opinion, p. 23.

  50. FTC, et al. v. Staples Inc. and Office Depot, Inc. Complaint (2015), ¶ 43; Memorandum Opinion, pp. 28–31.

  51. FTC, et al. v. Staples Inc. and Office Depot, Inc. Complaint (2015), p. 25.

  52. Horizontal Merger Guidelines, § 4.2.2.

  53. For more details about the analysis of hospital mergers at the FTC, see Farrell et al. (2011).

  54. For examples of these cases, see Agrium and Potash Complaint (2017), available at https://www.ftc.gov/system/files/documents/cases/1610232_agrium_complaint_0.pdf. Also see Air Liquide and Air Gas Complaint (2016), available at https://www.ftc.gov/system/files/documents/cases/160718aalcmpt.pdf.

  55. See Bulow et al. (1985).

  56. For examples of cases that allege coordinated effects, see Ardagh Group S.A. and Saint-Gobain Containers, Inc. and Compagnie de Saint-Gobain Complaint (2013). Available at https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130701ardaghcmpt.pdf, Agrium Inc. and Potash Corp and Nutrien Ltd. Complaint (2017). Available at https://www.ftc.gov/system/files/documents/cases/1610232_agrium_complaint_0.pdf,

    Ball Corp. and Rexam Plc Complaint (2016). at https://www.ftc.gov/system/files/documents/cases/160816ball-rexamcmpt.pdf, and American Air Liquide Holdings, Inc. Complaint (2016) at https://www.ftc.gov/system/files/documents/cases/160718aalcmpt.pdf.

  57. Compare Horizontal Merger Guidelines (1997) §0.1, p. 3 and Horizontal Merger Guidelines (2010) §12.

  58. See Grifols, S.A., and Grifols Shared Services North America, Inc. Complaint (2018), ¶16. at https://www.ftc.gov/system/files/documents/cases/181_0081_c4654_grifols-biotest_complaint.pdf.

  59. SeeYour Therapy Source, Neeraj Jindal and Sheri Yarbray Complaint (2019), at https://www.ftc.gov/system/files/documents/cases/171_0134_c4689_yourtherapysource_complaint.pdf.

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Acknowledgements

The opinions expressed here are those of the authors and not necessarily those of the Federal Trade Commission or any of its Commissioners. We thank the editors and David Schmidt for helpful comments and Jennifer Snyder of the FTC’s Bureau of Economics for her able assistance in the preparation of this paper.

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  1. Federal Trade Commission, Bureau of Economics, 600 Pennsylvania Ave., N.W., Washington, DC, 20580, USA

    Alison Oldale, Joel Schrag & Christopher Taylor

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Correspondence to Joel Schrag.

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Oldale, A., Schrag, J. & Taylor, C. The 2010 Horizontal Merger Guidelines at Ten: A View from the FTC’s Bureau of Economics. Rev Ind Organ 58, 33–50 (2021). https://doi.org/10.1007/s11151-020-09800-z

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