The Department of Justice and the Federal Trade Commission held their final workshop yesterday to consider changes to the horizontal merger guidelines.
The two agencies announced in September that they would revisit the guidelines, which were last updated in 1992 and are used to evaluate potential competitive effects of mergers.
Since then, the DOJ and FTC have held five joint workshops - in New York, Chicago, California, plus two in Washington - with nearly 100 panelists, and received 44 written submissions.
“A consistent theme running through the panels is that there are indeed gaps between the guidelines and actual agency practice--gaps in the sense of both omissions of important factors that help predict the competitive effects of mergers and statements that are either misleading or inaccurate,” said Assistant Attorney General Christine Varney in remarks delivered at yesterday’s workshop held at the FTC.
For example, the guidelines call for the agencies to apply a five-step analytical process, first assessing markets and market shares, then potentially adverse competitive effects, entry, efficiencies, and then failing-firm considerations.
“None of our panelists advocated following that sequence as the best and most efficient way either to assess every merger's likely competitive effects or to reach an enforcement decision,” Varney said. “Panelists have noted, however, that far more flexibility than is indicated in the guidelines is both the norm of actual agency practice and, moreover, appropriate given the diversity of considerations.”
Panelsist also agreed that the guidelines overstate the importance the Herfindahl-Hirschman Index, or HHI, a measure of market concentration.
“It will not surprise you that HHIs have been the focus of neither a party presentation nor a staff recommendation since I've been the assistant attorney general,” Varney said. “It is thus relatively clear that the HHI thresholds set forth in the guidelines no longer capture agency practice or economic learning about the kinds of mergers that are most likely to lead to consumer harm.”
Varney also pointed to unilateral effects as another area where agency thinking has evolved considerably since 1992. The theory of unilateral effects recognizes that mergers may create or enhance market power by allowing the merged firm to profitably raise prices, without accommodation of other rival market incumbents.