If adopted, the 2023 draft guidelines would lead to enhanced scrutiny by the antitrust agencies of mergers across the board, including those that: negatively affect the labor markets; could eliminate potential or perceived new entrants into the relevant market; involve merging parties that are engaged in “serial acquisitions” deemed part of a “pattern or strategy of multiple acquisitions”; and involve multi-sided platforms connecting buyers and sellers. The revised guidelines should be considered in conjunction with the proposed changes to the Hart-Scott-Rodino (HSR) notification requirements issued by the FTC and DOJ in June 2023. These changes—currently subject to a 60-day public comment period which ends on August 28, 2023— could provide the agencies with additional information about proposed mergers that they may use to support the theories enumerated in the 2023 draft guidelines.
Agencies outline new theories of merger enforcement
The 2023 draft guidelines do not distinguish between horizontal and vertical mergers—a break from past practice when the agencies published separate guidance addressing horizontal and vertical transactions individually. The agencies also note that the concerns raised in the guidelines can also arise in mergers that are neither strictly horizontal or vertical.
The revised guidelines make clear that the agencies see their mandate for merger review as moving away from “predict[ing] the future or the precise effects of a merger with certainty” and instead towards “assess[ing] the risk that the merger may lessen competition substantially or tend to create a monopoly based on the totality of the evidence available at the time of the investigation.”1The revised guidelines hew closely to the agencies’ interpretation of Section 7 of the Clayton Act2 as an “interpretative statute” that reflects the “mandate of Congress that tendencies towards concentration in industry are to be curbed in their incipiency.”3 The revised guidelines cite extensively to case law, though many of the cases cited are decades old.4 These citations are in line with the agencies’ pronouncement that one of their “core goals” in publishing the revised guidelines— perhaps in an attempt to improve their outcomes in court— is to “cit[e] cases in order to clarify the connection between the law and the analytic frameworks described.”
Rather than following the prior guidelines’ approach of laying out the agencies’ analytical process and approach to assessing mergers (e.g., defining markets, measuring concentration, assessing likely anticompetitive effects, and explaining offsetting considerations, such as efficiencies) the 2023 draft guidelines are organized around 13 high-level principles (e.g. "Mergers Should Not Eliminate Substantial Competition between Firms”). The revised guidelines advocate the agencies’ new positions on these 13 principles and address the agencies’ skepticism of offsetting considerations such as efficiencies or failing firms. The thirteen guidelines enumerated in the agencies’ updated draft are listed below:
- Mergers should not significantly increase concentration in highly concentrated markets.
- Mergers should not eliminate substantial competition between firms.
- Mergers should not increase the risk of coordination.
- Mergers should not eliminate a potential entrant in a concentrated market.
- Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete.
- Vertical mergers should not create market structures that foreclose competition.
- Mergers should not entrench or extend a dominant position.
- Mergers should not further a trend toward concentration.
- When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
- When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform.
- When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.
- When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.
- Mergers should not otherwise substantially lessen competition or tend to create a monopoly.
Below we highlight some of the significant changes to merger policy inherent in these revised guidelines that set them apart from previous iterations.
Revised guidelines lower threshold for what will be considered a “highly concentrated market”
The 2023 draft guidelines state that the agencies will adopt a structural presumption that mergers resulting in a market Herfindahl-Hirschmann Index (HHI)5 of greater than 1,800 and a change in HHI greater than 100 points will cause undue concentration and may substantially lessen competition or tend to create a monopoly. This structural presumption will extend to a significantly more expansive set of mergers than the presumption in the 2010 Horizontal Merger Guidelines, which applied to mergers that resulted in an increase in HHI above 200 points and considered a “highly concentrated market” to have an HHI above 2500.6
2023 Draft Guidelines
Highly Concentrated Market
HHI > 2,500 after the merger
HHI > 1,800 after the merger
Increase in HHI as a Result of the Merger
Increase in HHI > 200
Increase in HHI >100
In addition, the 2023 revised guidelines cite to the 1963 Supreme Court case U.S. v. Philadelphia National Bank to support the presumption that “a merger that significantly increases concentration and creates a firm with a share over thirty percent presents an impermissible threat of undue concentration regardless of the overall level of market concentration.”7 This is also a significant departure from the 2010 Guidelines, which appreciated that market shares may “not fully reflect the competitive significance of firms in the market or the impact of the merger,” and directed the agencies to use evidence of market share only “in conjunction with other evidence of competitive effects.”8
Merger of two potential market entrants will be assessed in the same way as a merger between an incumbent and a potential entrant
The revised guidelines consider a merger between two potential market entrants—even if they do not have a commercialized product in the market or an existing presence in the relevant geographic market—the same way it will consider a merger between an established incumbent and a potential market entrant: as potentially resulting in a substantial lessening of competition.
In addition, the revised guidelines state that even mergers involving a party that is perceived as a potential entrant may substantially lessen competition, even absent any plans or consideration of any plans to enter. According to the revised guidelines, an acquisition of a “perceived potential entrant” may substantially lessen competition, where a current market participant could reasonably consider a firm to be a “potential entrant” to the relevant market and that potential entrant has a “likely influence on existing competition.” “Concentrated markets often lack robust competition, and so the loss of even a secondary source of competition, like perceived potential entrants, may substantially lessen competition.”9
Agencies will consider whether merger may entrench or extend a firm’s dominant position in new markets
In addition to considering whether a merger involving an already-dominant firm (defined in the revised guidelines as a firm with a market share as low as 30 percent) will serve to entrench that firm’s dominant position, the 2023 draft guidelines also address whether the merger will extend the dominant position of one of the merging firms into another market. The agencies will consider the following factors relevant to their analysis of whether a merger may entrench the dominant position of a merging firm in the relevant market:
Will the merger increase barriers to entry by requiring rivals to incur additional entry costs?
Will the merger increase switching costs associated with changing suppliers, making it more difficult for customers to switch away from the dominant firm’s products or services?
Will the merger interfere with the use of competitive alternatives, such as services that allow customers to work with multiple providers of similar or overlapping bundles of products and services?
Will the merger deprive rivals of scale economies or network effects that can limit the ability of rivals to improve their own products and compete more effectively?
Will the merger eliminate a nascent threat to the dominant firm that could grow into a significant rival?10
The revised guidelines state that the agencies will look at whether the acquired firm is a nascent competitive threat in assessing whether the merger also violates Section 2 of the Sherman Act11 (which prohibits monopolization).
The revised guidelines also state that the agencies will look at whether a merger could “enable the merged firm to extend a dominant position from one market into a related market, thereby substantially lessening competition in the related market.”12 Though reflective of recent enforcement efforts, this would be a significant extension beyond the scope of past guidelines, with regulators considering the competitive effects a merged firm’s tying, bundling, conditioning, or otherwise linking sales of two products would have in a related market that is not the focus of the merger review.
Vertical mergers can be evaluated on whether a firm has the ability or the incentive to foreclose competition
The revised guidelines state that, with respect to analyzing vertical mergers, the agencies can consider whether the merger gives the parties the ability or the incentive to foreclose competitors from a segment of the market otherwise open to them. This theory was recently rejected by the Northern District of California, holding that the FTC must show that the combined firm had the ability and the incentive to foreclose, and that competition would probably be substantially lessened as a result of the withholding.13
Mergers that contribute “to a trend toward concentration” may have the effect of substantially lessening competition
The revised guidelines memorialize the agencies’ view—rooted in Supreme Court case law from the 1960s and 1970s—that if a merger is found to further a trend toward concentration, the Government can “rest its case on a showing of even small increases of market share or market concentration in those industries or markets where concentration is already great or has been recently increasing.”14 The revised guidelines lay out a two-factor test that the agencies will use to determine if a merger would further a trend towards concentration sufficiently that it may substantially lessen competition: (1) would the merger occur in a market or industry sector where there is a significant tendency toward concentration (vertical or horizontal) that would result in the “foreclosure of independent manufacturers from markets otherwise open to them”;15 and (2) will the merger increase the existing level of concentration or the pace of that trend.
While the guidelines state that a “significant tendency toward concentration” can be established by a “steadily increasing HHI” that exceeds 1,000 and rises towards 1,800, the guidelines do not indicate over what period of time this rise will be calculated. In addition, in determining what will be considered an increase in the “existing level of concentration or the pace of that trend,” the revised guidelines state that, in addition to evidence that there has been a change in HHI greater than 200, “other facts showing the merger would increase the pace of concentration” may be considered by the agencies. Examples of potentially relevant facts are not provided.
A merger may be examined as part of a series of multiple acquisitions rather than on its own merits
The revised guidelines advise that “a firm that engages in an anticompetitive pattern of strategy of multiple small acquisitions in the same or related business lines” may be illegal, even if “no single acquisition on its own would risk substantially lessening competition or tending to create a monopoly.”16 The revised guidelines give the agencies carte blanche to evaluate the series of acquisitions as part of an industry trend, or evaluate the overall pattern or strategy of serial acquisitions by the acquiring firm. Citing again to the 1962 Supreme Court decision in U.S. v. Brown Shoe, the revised guidelines attempt to justify analyzing “individual acquisitions in light of the cumulative effect of related patterns or business strategies.”17
The 2023 draft guidelines advise that the agencies will consider both historical evidence of actual and attempted acquisitions in both the markets at issue and other markets “to reveal any overall strategic approach to serial acquisitions.” In a July 19, 2023 interview with NPR discussing the publication of the revised draft guidelines, FTC Chair Lina Khan stressed that the guidelines are intended to address “strategies where firms are doing roll ups of entire industries through serial acquisitions and buying up small businesses.”18
Guidelines address multi-sided platforms that do not fall into “horizontal” or “vertical” merger categories
The revised guidelines include specific metrics for evaluating mergers involving multi-sided platforms19 that considers “competition between platforms, competition on a platform, and competition to displace the platform.”20 Such platforms are described in the revised guidelines as employing a platform operator that provides core services enabling the platform to connect participants groups across multiple sides, and having platform participants who use the platform to find other participants, resulting in network effects whereby platform participants contribute to the value of the platform for other participants and the operator.
The revised guidelines cite the Clayton Act’s protection of competition “in any line of commerce” as sufficient authority for the agencies to “seek to prohibit a merger that harms competition within a relevant market for any product or service offered on a platform to any group of participants.” This may include (1) mergers involving two platform operators that eliminate the competition between them; (2) a platform operator’s acquisition of a platform participant which can entrench the operator’s dominant position; (3) acquisitions of firms that provide services that facilitate participation on multiple platforms and can deprive rivals of platform participants; and (4) mergers involving firms that provide other important inputs to platform services that can enable the platform operator to deny rivals the benefits of those inputs.21
Revised guidelines memorialize agencies’ increased focus on a merger’s effect on labor market competition
FTC Chair Khan and DOJ Antitrust Division Assistant Attorney General Jonathan Kanter have been vocal about their intention to incorporate labor considerations into their respective agencies’ merger review investigations.22 The revised guidelines make this position an official policy of the agencies, categorizing labor markets as “important buyer markets” that are subject to the “same general concerns as in other markets . . . where employers are the buyers of labor and workers are the sellers.”23 The 2023 draft guidelines state that the agencies will consider whether a merger substantially lessens the competition for workers so that the reduction in labor market competition may lower wages or slow wage growth, or worsen benefits or working conditions. The agencies will consider “one or more of these effects” in determining whether merging firms compete for labor.
The revised guidelines explicitly reject potential efficiency arguments with respect to a merger reducing the costs of labor, stating that “if the merger may substantially lessen competition or tend to create a monopoly in upstream markets, that loss of competition is not offset by purported benefits in a separate downstream market. Because the Clayton Act [is applicable to] any line of commerce and in any section of the country, a merger’s harm to competition among buyers is not saved by benefits to competition among sellers.”24
Acquisitions resulting in partial control may raise antitrust concerns
With respect to partial acquisitions, the revised guidelines state that the agencies may assess the post-acquisition relationship between the parties and the independent incentives of the parties outside of the acquisition to determine whether a partial acquisition may substantially lessen competition. Factors the agencies may consider include: (1) does the partial acquisition give the partial owner the ability to influence the competitive conduct of the target firm through a voting interest or specific governance rights; (2) does the partial acquisition reduce the incentive of the acquiring firm to compete because it may profit through dividend or other revenue sharing even when it loses business to the rival; and (3) does the partial acquisition give the acquiring firm access to non-public, competitively sensitive information from the target firm that can enhance the ability of the target and partial owner to coordinate their behavior and make other accommodating responses faster and more targeted.25
The draft guidelines are open for public comment until September 18, 2023. If they are finalized with minimal substantive changes, the result will be increased deal uncertainty for parties, as a much broader set of mergers could face close scrutiny by the agencies. Moreover, it remains unclear if incorporating the agencies’ new theories of merger enforcement into formal guidelines will improve the agencies’ record in merger litigation. Recent losses for the agencies suggest that may be unlikely.
Authored by Chuck Loughlin, Justin Bernick, Lauren Battaglia, Ashley Howlett, Ken Field, Ilana Kattan, and Jill Ottenberg.
1 See U.S. Department of Justice and Federal Trade Commission, Draft Merger Guidelines (19 July 2023) (2023 Draft Merger Guidelines) at 2.
2 15 U.S.C. §18.
3 See 2023 Draft Merger Guidelines (citing Brown Shoe v. United States, 370 U.S. 294, 346 (1962)).
4 A Fact Sheet released by the agencies alongside the updated guidelines notes that the 2023 draft guidelines are “the first merger guidelines to cite case precedents” and “draw extensively on Supreme Court and appellate cases to ensure it is rooted in the law.”
5 “The HHI is defined in the revised guidelines as the sum of the squares of the market shares; it is small when there are many small firms and grows larger as the market becomes more concentrated, reaching 10,000 in a market with a single firm.” 2023 Draft Merger Guidelines at 6.
6 See U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (Aug. 19, 2010) at 19.
7 See 2023 Draft Merger Guidelines at 7 (citing United States v. Phila. Nat’l Bank, 374 U.S. 321, 364-65 (“Without attempting to specify the smallest market share which would still be considered to threaten undue concentrate, we are clear that 30% presents that threat.”)).
8 See 2010 Horizontal Merger Guidelines at 18.
9 See 2023 Draft Merger Guidelines at 12-13.
10 The revised guidelines also note that the agencies are not limited to these considerations, and can assess whether the merger entrenches a dominant position “in any other way based on the market realities specific to the merger.” See 2023 Draft Merger Guidelines at 20.
11 15 U.S.C. § 2.
12 See 2023 Draft Merger Guidelines at 21.
13 See FTC v. Microsoft Corporation, Preliminary Injunction Opinion, 23-cv-02880 (N.D. Cal. July 23, 2023).
14 See 2023 Draft Merger Guidelines at 21 (citing U.S. v. Gen. Dynamics, 415 U.S. 486, 498 (1974) (quoting Brown Shoe, 370 U.S. at 321-22)).
15 See id. at 22 (citing Brown Shoe, 370 U.S. at 332).
16 See 2023 Draft Merger Guidelines at 22.
17 See id. (citing Brown Shoe, 370 U.S. at 334).
18 NPR, The FTC’s rules for mergers and acquisitions just got tougher (July 19, 2023) available here.
19 Such platforms are described in the revised guidelines as defined by the use of a platform operator that provides core services enabling the platform to connect participants groups across multiple sides; having platform participants who use the platform to find other participants, resulting in network effects whereby platform participants contribute to the value of the platform for other participants and the operator.
20 See 2023 Revised Merger Guidelines at 23.
21 See id. at 24-25.
22 See e.g. Department of Justice press release, Assistant Attorney General Jonathan Kanter Delivers Remarks on Modernizing Merger Guidelines (Jan. 18, 2022) available here; and Federal Trade Commission, Keynote Remarks of Lina M. Khan, International Competition Network, Berlin, Germany(May 6, 2022) available here.
23 See 2023 Draft Merger Guidelines at 26.
24 See id.
25 See id. at 27-28.