U.S. Department of Justice and Federal Trade Commission issued Merger Guidelines on December 18, 2023. The Press Release states, in part:
Today, the Justice Department and the Federal Trade
Commission (FTC) jointly issued the 2023 Merger
Guidelines, which describe factors and frameworks the agencies utilize when
reviewing mergers and acquisitions. The 2023 Merger Guidelines are the
culmination of a nearly two-year process of public engagement and reflect
modern market realities, advances in economics and law, and the lived
experiences of a diverse array of market participants.
“These finalized Guidelines provide transparency into
how the Justice Department is protecting the American people from the ways in
which unlawful, anticompetitive practices manifest themselves in our modern
economy,” said Attorney General Merrick B. Garland. “Since releasing the Draft
Merger Guidelines earlier this summer, we have engaged with stakeholders across
the country, and the Guidelines are stronger as a result. The Justice
Department will continue to vigorously enforce the laws that safeguard competition
and protect all Americans.”
. . . The 2023 Merger Guidelines released today modify
Merger Guidelines, released on July 19, to address comments from the
public, including extensive engagement from attorneys, economists, academics,
enforcers, and other policymakers at the agencies’ three Merger Guidelines
Workshops. They emphasize the dynamic and complex nature of competition ranging
from price competition to competition for the terms and conditions of
employment, to platform competition. This approach enables the agencies to
assess the commercial realities of the United States’ modern economy when making
enforcement decisions and ensures that merger enforcement protects competition
in all its forms.
. . . The robust process to develop the 2023 Merger
Guidelines began in January 2022. The agencies announced an initiative to
evaluate possible revisions to the 2010 Horizontal Merger Guidelines and the
2020 Vertical Merger Guidelines and published a Request
for Information on Merger Enforcement, which sought public comment on
modernizing merger enforcement. The agencies received more than 5,000 comments.
Commenters highlighted excessive market consolidation across industries and
overwhelmingly urged the agencies to strengthen their approach to merger
enforcement. At the agencies’ four listening sessions, business owners, workers, and
other advocates similarly highlighted the potential for mergers and
acquisitions to undermine open, vibrant, and competitive markets, in industries
ranging from food and agriculture to health care.
Informed by this feedback, agency experience and expertise,
as well as developments in the market, law, and economics, the agencies drafted
and jointly released a proposed
version of the 2023 Merger Guidelines for public comment in July 2023
and received more than 30,000 comments reflecting the views of consumers,
workers, academics, interest organizations, attorneys, enforcers, and many
others across various sectors of the American economy. The agencies also held
Guidelines Workshops to discuss the draft Merger Guidelines. This
engagement informed an in-depth revision process culminating in today’s release
of the 2023 Merger Guidelines.
Like the prior horizontal and vertical merger guidelines they
replace, the 2023 Merger Guidelines are not themselves legally binding, but
provide transparency into the agencies’ decision-making process.
The 2023 Merger Guidelines do not predetermine enforcement
action by the agencies. Although the Merger Guidelines identify the factors and
frameworks the agencies consider when investigating mergers, the agencies’
enforcement decisions will necessarily depend on the facts in any case and will
continue to require prosecutorial discretion and judgment.
The Merger Guidelines discuss the
issue of nascent technology:
2.6.A. Entrenching a Dominant Position Raising Barriers to
Entry or Competition. . . .
Increasing Switching Costs
Interfering With the Use of Competitive Alternatives. . . .
Depriving Rivals of Scale Economies or Network Effects. . . .
Eliminating a Nascent Competitive Threat. A merger may
involve a dominant firm acquiring a nascent competitive threat—namely, a firm
that could grow into a significant rival, facilitate other rivals’ growth, or
otherwise lead to a reduction in its power.
In some cases, the nascent threat may be a firm that provides a product
or service similar to the acquiring firm that does not substantially constrain
the acquiring firm at the time of the merger but has the potential to grow into
a more significant rival in the future. In other cases, factors such as network
effects, scale economies, or switching costs may make it extremely difficult
for a new entrant to offer all of the product features or services at
comparable quality and terms that an incumbent offers. The most likely
successful threats in these situations can be firms that initially avoid
directly entering the dominant firm’s market, instead specializing in (a)
serving a narrow customer segment, (b) offering services that only partially
overlap with those of the incumbent, or (c) serving an overlapping customer
segment with distinct products or services.
Firms with niche or only partially overlapping products or
customers can grow into longer-term threats to a dominant firm. Once
established in its niche, a nascent threat may be able to add features or serve
additional customer segments, growing into greater overlap of customer segments
or features over time, thereby intensifying competition with the dominant firm.
A nascent threat may also facilitate customers aggregating additional products
and services from multiple providers that serve as a partial alternative to the
incumbent’s offering. Thus, the success and independence of the nascent threat
may both provide for a direct threat of competition by the niche or nascent
firm and may facilitate competition or encourage entry by other, potentially
complementary providers that may provide a partial competitive constraint. In
this way, the nascent threat supports what may be referred to as “ecosystem”
competition. In this context, ecosystem competition refers to a situation where
an incumbent firm that offers a wide array of products and services may be
partially constrained by other combinations of products and services from one
or more providers, even if the business model of those competing services is
Nascent threats may be particularly likely to emerge during
technological transitions. Technological transitions can render existing entry
barriers less relevant, temporarily making incumbents susceptible to
competitive threats. For example, technological transitions can create
temporary opportunities for entrants to differentiate or expand their offerings
based on their alignment with new technologies, enabling them to capture
network effects that otherwise insulate incumbents from competition. A merger
in this context may lessen competition by preventing or delaying any such
beneficial shift or by shaping it so that the incumbent retains its dominant
position. For example, a dominant firm might seek to acquire firms to help it
reinforce or recreate entry barriers so that its dominance endures past the
technological transition. Or it might seek to acquire nascent threats that
might otherwise gain sufficient customers to overcome entry barriers. In
evaluating the potential for entrenching dominance, the Agencies take
particular care to preserve opportunities for more competitive markets to
emerge during such technological shifts. Separate from and in addition to its
Section 7 analysis, the Agencies will consider whether the merger violates
Section 2 of the Sherman Act. For example, under Section 2 of the Sherman Act,
a firm that may challenge a monopolist may be characterized as a “nascent
threat” even if the impending threat is uncertain and may take several years to
materialize. The Agencies assess whether the merger is reasonably capable of
contributing significantly to the preservation of monopoly power in violation
of Section 2, which turns on whether the acquired firm is a nascent competitive
threat. (footnotes omitted).
Guideline 9 is titled, “When a Merger Involves a Multi-Sided
Platform, the Agencies Examine Competition Between Platforms, on a Platform, or
to Displace a Platform.” That Guideline
provides, in part:
Platforms provide different products or services to two or
more different groups or “sides” who may benefit from each other’s
participation. Mergers involving platforms can threaten competition, even when
a platform merges with a firm that is neither a direct competitor nor in a
traditional vertical relationship with the platform. When evaluating a merger
involving a platform, the Agencies apply Guidelines 1-6 while accounting for
market realities associated with platform competition. Specifically, the
Agencies consider competition between platforms, competition on a platform, and
competition to displace the platform.
Multi-sided platforms generally have several attributes in
common, though they can also vary in important ways. Some of these attributes
Platforms have multiple sides. On each side of a platform, platform
participants provide or use distinct products and services. Participants can
provide or use different types of products or services on each side.
· A platform
operator provides the core services that enable the platform to connect
participant groups across multiple sides. The platform operator controls other
participants’ access to the platform and can influence how interactions among
platform participants play out.
side of a platform includes platform participants. Their participation
might be as simple as using the platform to find other participants, or as
involved as building platform services that enable other participants to
connect in new ways and allow new participants to join the platform.
effects occur when platform participants contribute to the value of the
platform for other participants and the operator. The value for groups of
participants on one side may depend on the number of participants either on the
same side (direct network effects) or on the other side(s) (indirect network
effects). Network effects can create a tendency toward concentration in
platform industries. Indirect network effects can be asymmetric and
heterogeneous; for example, one side of the market or segment of participants
may place relatively greater value on the other side(s).
· A conflict
of interest can arise when a platform operator is also a platform
participant. The Agencies refer to a “conflict of interest” as the divergence
that can arise between the operator’s incentives to operate the platform as a
forum for competition and its incentive to operate as a competitor on the
platform itself. As discussed below, a conflict of interest sometimes
exacerbates competitive concerns from mergers. Consistent with the Clayton
Act’s protection of competition “in any line of commerce,” the Agencies will 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—i.e.,
around one side of the platform (see Section 4.3).
The Agencies protect competition between platforms by
preventing the acquisition or exclusion of other platform operators that may
substantially lessen competition or tend to create a monopoly. This scenario
can arise from various types of mergers:
A. Mergers involving two platform operators eliminate the
competition between them. In a market with a platform, entry or growth by
smaller competing platforms can be particularly challenging because of network
effects. A common strategy for smaller platforms is to specialize, providing
distinctive features. Thus, dominant platforms can lessen competition and
entrench their position by systematically acquiring firms competing with one or
more sides of a multi-sided platform while they are in their infancy. The
Agencies seek to stop these trends in their incipiency.
B. A platform operator may acquire a platform participant,
which can entrench the operator’s position by depriving rivals of participants
and, in turn, depriving them of network effects. For example, acquiring a major
seller on a platform may make it harder for rival platforms to recruit buyers.
The long-run benefits to a platform operator of denying network effects to
rival platforms create a powerful incentive to withhold or degrade those
rivals’ access to platform participants that the operator acquires. The more
powerful the platform operator, the greater the threat to competition presented
by mergers that may weaken rival operators or increase barriers to entry and
C. Acquisitions of firms that provide services that
facilitate participation on multiple platforms can deprive rivals of platform
participants. Many services can facilitate such participation, such as tools
that help shoppers compare prices across platforms, applications that help
sellers manage listings on multiple platforms, or software that helps users
switch among platforms.
D. Mergers that involve firms that provide other important
inputs to platform services can enable the platform operator to deny rivals the
benefits of those inputs. For example, acquiring data that helps facilitate
matching, sorting, or prediction services may enable the platform to weaken
rival platforms by denying them that data.
The Agencies protect competition on a platform in any
markets that interact with the platform. When a merger involves a platform
operator and platform participants, the Agencies carefully examine whether the
merger would create conflicts of interest that would harm competition. A
platform operator that is also a platform participant may have a conflict of
interest whereby it has an incentive to give its own products and services an
advantage over other participants competing on the platform. Platform operators
must often choose between making it easy for users to access their preferred
products and directing those users to products that instead provide greater
benefit to the platform operator. Merging with a firm that makes a product
offered on the platform may change how the platform operator balances these
competing interests. For example, the platform operator may find it is more
profitable to give its own product greater prominence even if that product is
inferior or is offered on worse terms after the merger—and even if some
participants leave the platform as a result. This can harm competition in the
product market for the advantaged product, where the harm to competition may be
experienced both on the platform and in other channels.
The Agencies protect competition to displace the
platform or any of its services. For example, new technologies or services may
create an important opportunity for firms to replace one or more services the
incumbent platform operator provides, shifting some participants to partially
or fully meet their needs in different ways or through different channels.
Similarly, a non-platform service can lessen dependence on the platform by
providing an alternative to one or more functions provided by the platform
operators. When platform owners are dominant, the Agencies seek to prevent even
relatively small accretions of power from inhibiting the prospects for
displacing the platform or for decreasing dependency on the platform.
In addition, a platform operator that advantages its own
products that compete on the platform can lessen competition between platforms
and to displace the platform, as the operator may both advantage its own
product or service, and also deprive rival platforms of access to it, limiting
those rivals’ network effects. (emphasis in original and footnotes omitted).