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Bloomberg
US antitrust enforcers are proposing new guidelines for determining whether to approve mergers that combine companies that don’t compete with one another but operate in the same supply chain.
The Justice Department and Federal Trade Commission announced criteria for how they would evaluate so-called vertical mergers in the future. If finalised, the guidelines would replace rules that haven’t formally been updated since 1984 despite new thinking about how such deals affect competition.
The proposal marks a move by the two agencies to clarify their approach to assessing potential competitive harm from vertical deals. Those mergers had long been seen as mostly benign until 2017, when the Justice Department surprised the antitrust world by suing to block AT&T Inc’s takeover of Time Warner Inc, a case the government ultimately lost.
While the lawsuit was an aggressive move, it was criticised by some who said it was driven by President Donald Trump’s animus towards CNN, which was part of Time Warner. The Justice Department has long denied that there were any political considerations in the case.
“The revised draft guidelines are based on new economic understandings and the agencies’ experience over the past several decades and better reflect the agencies’ actual practice in evaluating proposed vertical mergers,†the Justice Department’s antitrust chief, Makan Delrahim, said in a statement. Once finalised, they will provide “more clarity and transparency,†he added.
Vertical deals were typically approved because unlike traditional mergers between companies that compete — so-called horizontal deals — they don’t eliminate a competitor in the market, so there’s less risk for higher prices from a more consolidated market.
In theory, a vertical deal can make a company more efficient by giving it cost advantages over rivals, and those lower costs can be passed on to customers in the form of lower prices.
But lawyers and economists also point out that vertical deals can threaten competition by giving a company the power to raise operating costs of its rivals. In the Time Warner case, for example, Justice Department argued that AT&T would have the incentive and ability to charge higher rates for Time Warner programming sold to other pay-TV companies that compete with AT&T’s DirecTV unit.