It has been a year since the US Department of Justice (DoJ) and the Federal Trade Commission (FTC) issued updated Horizontal Merger Guidelines (HMGs), which explain how the US competition agencies analyse the competitive effects of mergers between firms that directly compete with similar products. Since then, the agencies have taken action against perceived threats to competition from a variety of mergers, as well as from cartels, and monopolistic acts. Merger enforcement has not been limited to horizontal mergers, but has involved a number of actions against ‘vertical’ mergers (merger of buyers and sellers) that are not addressed by the new HMGs. Very recently the DoJ issued potentially significant new guidelines for remedies to anti-competitive horizontal and vertical mergers, which appear to move away from structural remedies (such as divesture) to behavioural remedies, particularly for vertical mergers.

In addition to merger enforcement, the FTC and DoJ have actively challenged agreements between competitors and cartels as they have in past years. The DoJ has recently challenged some monopolistic practices after relatively little action in the area for a number of years.

Merger enforcement

The agencies have used the new HMGs in enforcement actions against a number of high-profile horizontal mergers. The DoJ filed a complaint against the proposed merger between NASDAQ and the New York Stock Exchange which ultimately led to the abandonment of those acquisition plans. The DoJ believed that a merged NASDAQ/NYSE would have monopolised securities exchanges in the US. The DoJ has also sought to prevent H&R Block’s proposed acquisition of TaxACT, a rival manufacturer of tax preparation software on the grounds that it would create a merger to duopoly. Additionally, The DoJ recently filed to block the proposed merger of AT&T and T-Mobile’s wireless networks.

Continuing a trend illustrated by the FTC’s imposed conditions on the TicketMaster/LiveNation merger in 2010, the agencies have pursued vertical mergers. In January 2011, the DoJ approved Comcast’s acquisition of NBC Universal with modifications, notably compelling the inclusion of an arbitration process for resolving disputes between Comcast and other rival cable operators over access to NBC Universal content. In April 2011, the DoJ also approved with modifications Google's acquisition of airline flight data provider ITA, requiring Google to license ITA’s key software package to current and new customers at ‘fair, reasonable, and non-discriminatory’ terms.

Monopolisation cases

Some high-profile actions have come in non-merger, monopolisation cases. The DoJ reached a settlement with United Regional Health Care System, a Texas hospital chain, (in the first unilateral monopoly case the agency brought since 1999) to prevent the hospital from inappropriately hindering commercial health insurers from contracting with competing hospitals. An ongoing case against Blue Cross/Blue Shield of Michigan concerns the insurer’s use of most-favoured customer contracts. The DoJ alleges that these contract terms had the effect of preventing hospitals and other providers from offering steeper discounts to other competing insurers. The DoJ also filed a complaint against American Express (over the fees the credit card company charges merchants). In addition, Google has confirmed that it is being investigated by the FTC over its practices in its search engine and advertising business.

New policy initiatives

In June 2011, the DoJ issued an updated Policy Guide to Merger Remedies to further promote transparency and fairness, and reduce uncertainty over antitrust enforcement. The new Policy Guide stresses remedies for potentially anticompetitive mergers beyond the traditional structural remedies. While DoJ says it still prefers to use divestitures to resolve problems in horizontal mergers, conduct remedies are now apparently favoured to resolve many vertical issues. Anti-competitive concerns in vertical mergers in particular may be resolved by using firewalls between parts of the new firm, preventing discrimination against downstream competitors, and barring certain contracting practices (such as exclusive dealing) that may block competitors from accessing critical inputs or customers.

While the DoJ rightly advertise their policies and procedures for remedying vertical mergers in the new Policy Guide, there is still a gap in information available to the public about how the agencies will enforce vertical mergers. It is difficult to evaluate the appropriateness of behavioural remedies when there is no clear indication of what the DoJ or FTC considers to be a competitive problem and how they determine whether a problem exists. Much has changed in economic thinking about vertical mergers since the last time vertical merger were discussed in the 1984 Guidelines, and those guidelines do not even discuss foreclosure issues that are the key basis for recent vertical merger remedies. Given their increased emphasis on enforcement of vertical mergers it would seem desirable to spell out clearly and concisely how they will review vertical mergers - particularly since the European Commission was able to issue vertical merger guidelines several years ago.

Navigant Economics