1984 MLkGLk GUIDLLINLS

1 UkCSL AND UNDLkLING CLIC ASSUM1ICNS

10 1hese Culdellnes sLaLe ln ouLllne form Lhe presenL enforcemenL pollcy of Lhe uS
ueparLmenL of !usLlce (ueparLmenL) concernlng acqulslLlons and mergers (mergers)
sub[ecL Lo secLlon 7 of Lhe ClayLon AcL
(1)
or secLlon 1 of Lhe Sherman AcL
(2)
1hey descrlbe Lhe
general prlnclples and speclflc sLandards normally used by Lhe ueparLmenL ln analyzlng
mergers
(3)
8y sLaLlng lLs pollcy as slmply and clearly as posslble Lhe ueparLmenL hopes Lo
reduce Lhe uncerLalnLy assoclaLed wlLh enforcemenL of Lhe anLlLrusL laws ln Lhls area
AlLhough Lhe Culdellnes should lmprove Lhe predlcLablllLy of Lhe ueparLmenLs merger
enforcemenL pollcy lL ls noL posslble Lo remove Lhe exerclse of [udgmenL from Lhe evaluaLlon
of mergers under Lhe anLlLrusL laws 8ecause Lhe speclflc sLandards seL forLh ln Lhe Culdellnes
musL be applled Lo a broad range of posslble facLual clrcumsLances sLrlcL appllcaLlon of Lhose
sLandards may provlde mlsleadlng answers Lo Lhe economlc quesLlons ralsed under Lhe
anLlLrusL laws Moreover Lhe plcLure of compeLlLlve condlLlons LhaL develops from hlsLorlcal
evldence may provlde an lncompleLe answer Lo Lhe forwardlooklng lnqulry of Lhe Culdellnes
1herefore Lhe ueparLmenL wlll apply Lhe sLandards of Lhe Culdellnes reasonably and flexlbly
Lo Lhe parLlcular facLs and clrcumsLances of each proposed merger
1he Culdellnes are deslgned prlmarlly Lo lndlcaLe when Lhe ueparLmenL ls llkely Lo challenge
mergers noL how lL wlll conducL Lhe llLlgaLlon of cases LhaL lL decldes Lo brlng AlLhough
relevanL ln Lhe laLLer conLexL Lhe facLors conLemplaLed ln Lhe sLandards do noL exhausL Lhe
range of evldence LhaL Lhe ueparLmenL may lnLroduce ln courL
(4)

1he unlfylng Lheme of Lhe Culdellnes ls LhaL mergers should noL be permlLLed Lo creaLe or
enhance markeL power or Lo faclllLaLe lLs exerclse A sole seller (a monopollsL) of a producL
wlLh no good subsLlLuLes can malnLaln a selllng prlce LhaL ls above Lhe level LhaL would prevall
lf Lhe markeL were compeLlLlve Where only a few flrms accounL for mosL of Lhe sales of a
producL Lhose flrms can ln some clrcumsLances elLher expllclLly or lmpllclLly coordlnaLe Lhelr
acLlons ln order Lo approxlmaLe Lhe performance of a monopollsL 1hls ablllLy of one or more
flrms proflLably Lo malnLaln prlces above compeLlLlve levels for a slgnlflcanL perlod of Llme ls
Lermed markeL power Sellers wlLh markeL power also may ellmlnaLe rlvalry on varlables
oLher Lhan prlce ln elLher case Lhe resulL ls a Lransfer of wealLh from buyers Lo sellers and a
mlsallocaLlon of resources
MarkeL power also encompasses Lhe ablllLy of a slngle buyer or group of buyers Lo depress
Lhe prlce pald for a producL Lo a level LhaL ls below Lhe compeLlLlve prlce 1he exerclse of
markeL power by buyers has wealLh Lransfer and resource mlsallocaLlon effecLs analogous Lo
Lhose assoclaLed wlLh Lhe exerclse of markeL power by sellers
AlLhough Lhey someLlmes harm compeLlLlon mergers generally play an lmporLanL role ln a free
enLerprlse economy 1hey can penallze lneffecLlve managemenL and faclllLaLe Lhe efflclenL
flow of lnvesLmenL caplLal and Lhe redeploymenL of exlsLlng producLlve asseLs Whlle
challenglng compeLlLlvely harmful mergers Lhe ueparLmenL seeks Lo avold unnecessary
lnLerference wlLh LhaL larger unlverse of mergers LhaL are elLher compeLlLlvely beneflclal or
neuLral ln aLLempLlng Lo medlaLe beLween Lhese dual concerns however Lhe Culdellnes
reflecL Lhe congresslonal lnLenL LhaL merger enforcemenL should lnLerdlcL compeLlLlve
problems ln Lhelr lnclplency
MAkkL1 DLIINI1ICN AND MLASUkLMLN1
20 uslng Lhe sLandards sLaLed below Lhe ueparLmenL wlll deflne and measure Lhe markeL for
each producL or servlce (herelnafLer producL) of each of Lhe merglng flrms 1he sLandards ln
Lhe Culdellnes are deslgned Lo ensure LhaL Lhe ueparLmenL analyzes Lhe llkely compeLlLlve
lmpacL of a merger wlLhln economlcally meanlngful markeLsle markeLs LhaL could be
sub[ecL Lo Lhe exerclse of markeL power Accordlngly for each producL of each merglng flrm
Lhe ueparLmenL seeks Lo deflne a markeL ln whlch flrms could effecLlvely exerclse markeL
power lf Lhey were able Lo coordlnaLe Lhelr acLlons lormally a markeL ls deflned as a producL
or group of producLs and a geographlc area ln whlch lL ls sold such LhaL a hypoLheLlcal proflL
maxlmlzlng flrm noL sub[ecL Lo prlce regulaLlon LhaL was Lhe only presenL and fuLure seller of
Lhose producLs ln LhaL area would lmpose a small buL slgnlflcanL and nonLranslLory lncrease
ln prlce above prevalllng or llkely fuLure levels 1he group of producLs and geographlc area LhaL
comprlse a markeL wlll be referred Lo respecLlvely as Lhe producL markeL and Lhe
geographlc markeL
ln deLermlnlng wheLher one or more flrms would be ln a poslLlon Lo exerclse markeL power lL
ls necessary Lo evaluaLe boLh Lhe probable demand responses of consumers and Lhe probable
supply responses of oLher flrms A prlce lncrease could be made unproflLably by any of four
Lypes of demand or supply responses 1) consumers swlLchlng Lo oLher producLs 2) consumers
swlLchlng Lo Lhe same producL produced by flrms ln oLher areas 3) producers of oLher
producLs swlLchlng exlsLlng faclllLles Lo Lhe producLlon of Lhe producL or 4) producers enLerlng
lnLo Lhe producLlon of Lhe producL by subsLanLlally modlfylng exlsLlng faclllLles or by
consLrucLlng new faclllLles Lach Lype of response ls consldered under Lhe Culdellnes
ln deLermlnlng wheLher any of Lhese responses are probable Lhe ueparLmenL usually musL
rely on hlsLorlcal markeL lnformaLlon as Lhe besL and someLlmes Lhe only lndlcaLor of how Lhe
markeL wlll funcLlon ln Lhe fuLure lL ls lmporLanL Lo noLe however LhaL Lhe Culdellnes are
fundamenLally concerned wlLh probable fuLure demand or supply responses
SecLlons 21 Lhrough 24 descrlbe how producL and geographlc markeLs wlll be deflned under
Lhese Culdellnes and how markeL shares wlll be calculaLed
1 roduct Market Def|n|t|on
11 Genera| Approach
1he ueparLmenL wlll flrsL deLermlne Lhe relevanL producL markeL wlLh respecL Lo each of Lhe
producLs of each of Lhe merglng flrms ln general Lhe ueparLmenL wlll lnclude ln Lhe producL
markeL a group of producLs such LhaL a hypoLheLlcal flrm LhaL was Lhe only presenL and fuLure
seller of Lhose producLs (a monopollsL) could proflLably lmpose a small buL slgnlflcanL and
nonLranslLory lncrease ln prlce 1haL ls assumlng LhaL buyers could respond Lo an lncrease ln
prlce for a LenLaLlvely ldenLlfled producL group only by shlfLlng Lo oLher producLs whaL would
happen? lf readlly avallable alLernaLlves were ln Lhe aggregaLe sufflclenLly aLLracLlve Lo
enough buyers an aLLempL Lo ralse prlce would noL prove proflLable and Lhe LenLaLlvely
ldenLlfled producL group would prove Lo be Loo narrow
Speclflcally Lhe ueparLmenL wlll begln wlLh each producL (narrowly deflned) produced or sold
by each merglng flrm and ask whaL would happen lf a hypoLheLlcal monopollsL of LhaL producL
lmposed a small buL slgnlflcanL and nonLranslLory lncrease ln prlce
(3)

lf Lhe prlce lncrease would cause so many buyers Lo shlfL Lo oLher producLs LhaL a hypoLheLlcal
monopollsL would noL flnd lL proflLable Lo lmpose such an lncrease ln prlce Lhen Lhe
ueparLmenL wlll add Lo Lhe producL group Lhe producL LhaL ls Lhe nexLbesL subsLlLuLe for Lhe
merglng flrms producL and ask Lhe same quesLlon agaln 1hls process wlll conLlnue unLll a
group of producLs ls ldenLlfled for whlch a hypoLheLlcal monopollsL could proflLably lmpose a
small buL slgnlflcanL and nonLranslLory lncrease ln prlce 1he ueparLmenL generally wlll
conslder Lhe relevanL producL markeL Lo be Lhe smallesL group of producLs LhaL saLlsfles Lhls
LesL
ln Lhe above analysls Lhe ueparLmenL wlll use prevalllng prlces of Lhe producLs of Lhe merglng
flrms and posslble subsLlLuLes for such producLs Powever Lhe ueparLmenL may use llkely
fuLure prlces when changes ln Lhe prevalllng prlces can be predlcLed wlLh reasonable
rellablllLy Changes ln prlce may be predlcLed on Lhe basls of for example expecLed changes ln
regulaLlons LhaL dlrecLly affecL prlce
ln general Lhe prlce for whlch an lncrease wlll be posLulaLed wlll be whaLever ls consldered Lo
be Lhe prlce of Lhe producL aL Lhe sLage of Lhe lndusLry belng examlned
(6)
ln aLLempLlng Lo
deLermlne ob[ecLlvely Lhe effecL of a small buL slgnlflcanL and nonLranslLory lncrease ln prlce
Lhe ueparLmenL ln mosL conLexLs wlll use a prlce lncrease of flve percenL lasLlng one year
Powever whaL consLlLuLes a small buL slgnlflcanL and nonLranslLory lncrease ln prlce wlll
depend on Lhe naLure of Lhe lndusLry and Lhe ueparLmenL aL Llmes may use a prlce lncrease
LhaL ls larger or smaller Lhan flve percenL
(7)

lor Lhe purposes of lLs analysls Lhe ueparLmenL wlll assume LhaL Lhe buyers and sellers
lmmedlaLely become aware of Lhe prlce lncrease
1 ke|evant Lv|dence
AlLhough dlrecL evldence of Lhe llkely effecL of a fuLure prlce lncrease may someLlmes be
avallable lL usually wlll be necessary for Lhe ueparLmenL Lo lnfer Lhe llkely effecLs of a prlce
lncrease from varlous Lypes of rellable clrcumsLanLlal evldence 1he posLulaLed small buL
slgnlflcanL and nonLranslLory prlce lncrease provldes an ob[ecLlve sLandard by whlch Lo
analyze Lhe avallable evldence 1hus ln evaluaLlng producL subsLlLuLablllLy Lhe ueparLmenL
wlll conslder all relevanL evldence buL wlll glve parLlcular welghL Lo Lhe followlng facLors
1) Lvldence of buyers percepLlons LhaL Lhe producLs are or are noL subsLlLuLes parLlcularly lf
Lhose buyers have acLually consldered shlfLlng purchases beLween Lhe producLs ln response Lo
changes ln relaLlve prlce or oLher compeLlLlve varlables
2) ulfferences ln Lhe prlce movemenLs of Lhe producLs or slmllarlLles ln prlce movemenLs over
a perlod of years LhaL are noL explalnable by common or parallel changes ln facLors such as
cosLs of lnpuLs lncome or oLher varlables
3) SlmllarlLles or dlfferences beLween Lhe producLs ln cusLomary usage deslgn physlcal
composlLlon and oLher Lechnlcal characLerlsLlcs and
4) Lvldence of sellers percepLlons LhaL Lhe producLs are or are noL subsLlLuLes parLlcularly lf
buslness declslons have been based on Lhose percepLlons
13 r|ce D|scr|m|nat|on
1he analysls of producL markeL deflnlLlon Lo Lhls polnL has assumed LhaL prlce dlscrlmlnaLlon
charglng dlfferenL buyers dlfferenL prlces for producLs havlng Lhe same cosL for example
would noL be posslble afLer Lhe merger LxlsLlng buyers someLlmes wlll dlffer slgnlflcanLly ln
Lhelr assessmenL of Lhe adequacy of a parLlcular subsLlLuLe and Lhe ease wlLh whlch Lhey could
subsLlLuLe lL for Lhe producL of Lhe merglng flrm Lven Lhough a general lncrease ln prlce mlghL
cause such slgnlflcanL subsLlLuLlon LhaL lL would noL be proflLable sellers who can prlce
dlscrlmlnaLe could ralse prlce only Lo groups of buyers who cannoL easlly subsLlLuLe away
(8)

lf such prlce dlscrlmlnaLlon ls posslble Lhe ueparLmenL wlll conslder deflnlng addlLlonal
narrower relevanL producL markeLs conslsLlng of parLlcular uses of Lhe producL for whlch a
hypoLheLlcal monopollsL could proflLably lmpose a small buL slgnlflcanL and nonLranslLory
lncrease ln prlce
Ident|f|cat|on of I|rms that roduce the ke|evant roduct
ln mosL cases Lhe ueparLmenLs evaluaLlon of a merger wlll focus prlmarlly on flrms LhaL
currenLly produce and sell Lhe relevanL producL ln addlLlon Lhe ueparLmenL may lnclude
oLher flrms ln Lhe markeL lf Lhelr lncluslon would more accuraLely reflecL probable supply
responses 1he followlng are examples of clrcumsLances ln whlch such addlLlonal flrms would
be lncluded ln Lhe markeL
1 roduct|on Subst|tut|on
1he same producLlve and dlsLrlbuLlve faclllLles can someLlmes be used Lo produce and sell Lwo
or more producLs LhaL buyers do noL regard as good subsLlLuLes roducLlon subsLlLuLlon refers
Lo Lhe shlfL by a flrm ln Lhe use of faclllLles from produclng and selllng one producL Lo
produclng and selllng anoLher uependlng upon Lhe cosL and speed of LhaL shlfL producLlon
subsLlLuLlon may allow flrms LhaL do noL currenLly produce Lhe relevanL producL Lo respond
effecLlvely Lo an lncrease ln Lhe prlce of LhaL producL
(9)

lf a flrm has exlsLlng producLlve and dlsLrlbuLlve faclllLles LhaL could easlly and economlcally be
used Lo produce and sell Lhe relevanL producL wlLhln one year ln response Lo a small buL
slgnlflcanL and nonLranslLory lncrease ln prlce Lhe ueparLmenL wlll lnclude LhaL flrm ln Lhe
markeL
(10)
ln Lhls conLexL a small buL slgnlflcanL and nonLranslLory lncrease ln prlce wlll be
deLermlned ln Lhe same way ln whlch lL ls deLermlned ln producL markeL deflnlLlon ln many
cases a flrm LhaL could readlly converL lLs faclllLles from Lhe producLlon of one producL Lo
anoLher would have slgnlflcanL dlfflculLy dlsLrlbuLlng or markeLlng Lhe new producL or for some
oLher reason would flnd Lhe subsLlLuLlon unproflLable Such flrms wlll noL be lncluded ln Lhe
markeL 1he compeLlLlve slgnlflcance of such flrms as well as Lhose LhaL wlll noL be lncluded ln
Lhe markeL because Lhey musL consLrucL slgnlflcanL new producLlve and dlsLrlbuLlve faclllLles
wlll be consldered ln evaluaLlng enLry condlLlons generally See SecLlon 33 (Lase of LnLry)
Durab|e roducts
Some longllved producLs may conLlnue Lo exerL compeLlLlve lnfluence afLer Lhe Llme of
orlglnal sale lf under Lhe sLandards sLaLed ln SecLlon 21 recycled or recondlLloned producLs
represenL good subsLlLuLes for new producLs Lhe ueparLmenL wlll lnclude ln Lhe markeL flrms
LhaL recycle or recondlLlon Lhose producLs
3 Interna| Consumpt|on
CapLlve producLlon and consumpLlon of Lhe relevanL producL by verLlcally lnLegraLed flrms are
parL of Lhe overall markeL supply and demand Such flrms may respond Lo an lncrease ln Lhe
prlce of Lhe relevanL producL ln elLher of Lwo ways 1hey may begln selllng Lhe relevanL
producL or alLernaLlvely Lhey may conLlnue Lo consume all of Lhelr producLlon buL lncrease
Lhelr producLlon of boLh Lhe relevanL producL and producLs ln whlch Lhe relevanL producL ls
embodled LlLher klnd of supply response could frusLraLe colluslon by flrms currenLly selllng
Lhe relevanL producL lf a flrm would be llkely Lo respond elLher way Lo a small buL slgnlflcanL
and nonLranslLory lncrease ln prlce Lhe ueparLmenL wlll lnclude LhaL flrm ln Lhe markeL ln
Lhls conLexL a small buL slgnlflcanL and nonLranslLory lncrease ln prlce wlll be deLermlned ln
Lhe same way ln whlch lL ls deLermlned ln producL markeL deflnlLlon
3 Geograph|c Market Def|n|t|on
31 Genera| Approach
lor each producL markeL of each merglng flrm Lhe ueparLmenL wlll deLermlne Lhe geographlc
markeL or markeLs ln whlch LhaL flrm sells 1he purpose of geographlc markeL deflnlLlon ls Lo
esLabllsh a geographlc boundary LhaL roughly separaLes flrms LhaL are lmporLanL facLors ln Lhe
compeLlLlve analysls of a merger from Lhose LhaL are noL uependlng on Lhe naLure of Lhe
producL and Lhe compeLlLlve clrcumsLances Lhe geographlc markeL may be as small as parL of
a clLy or as large as Lhe enLlre world Also a slngle flrm may operaLe ln a number of
economlcally dlscreLe geographlc markeLs
ln general Lhe ueparLmenL seeks Lo ldenLlfy a geographlc area such LhaL a hypoLheLlcal flrm
LhaL was Lhe only presenL or fuLure producer or seller of Lhe relevanL producL ln LhaL area
could proflLably lmpose a small buL slgnlflcanL and nonLranslLory lncrease ln prlce 1haL ls
assumlng LhaL buyers could respond Lo a prlce lncrease wlLhln a LenLaLlvely ldenLlfled area only
by shlfLlng Lo flrms locaLed ouLslde Lhe area whaL would happen? lf flrms locaLed elsewhere
readlly could provlde Lhe relevanL producL Lo Lhe hypoLheLlcal flrms buyers ln sufflclenL
quanLlLy aL a comparable prlce an aLLempL Lo ralse prlce would noL prove proflLable and Lhe
LenLaLlvely ldenLlfled geographlc area would prove Lo be Loo narrow
ln deflnlng Lhe geographlc markeL or markeLs affecLed by a merger Lhe ueparLmenL wlll begln
wlLh Lhe locaLlon of each merglng flrm (or each planL of a mulLlplanL flrm) and ask whaL would
happen lf a hypoLheLlcal monopollsL of Lhe relevanL producL aL LhaL polnL lmposed a small buL
slgnlflcanL and nonLranslLory lncrease ln prlce lf Lhls lncrease ln prlce would cause so many
buyers Lo shlfL Lo producLs produced ln oLher areas LhaL a hypoLheLlcal monopollsL produclng
or selllng Lhe relevanL producL aL Lhe merglng flrms locaLlon would noL flnd lL proflLable Lo
lmpose such an lncrease ln prlce Lhen Lhe ueparLmenL wlll add Lhe locaLlon from whlch
producLlon ls Lhe nexLbesL subsLlLuLe for producLlon aL Lhe merglng flrms locaLlon and ask Lhe
same quesLlon agaln 1hls process wlll be repeaLed unLll Lhe ueparLmenL ldenLlfles an area ln
whlch a hypoLheLlcal monopollsL could proflLably lmpose a small buL slgnlflcanL and
nonLranslLory lncrease ln prlce 1he smallesL markeL prlnclple wlll be applled as lL ls ln
producL markeL deflnlLlon 8oLh Lhe prlce ln whlch an lncrease wlll be posLulaLed and whaL
consLlLuLes a small buL slgnlflcanL and nonLranslLory lncrease ln prlce wlll be deLermlned ln
Lhe same way ln whlch lL ls deLermlned ln producL markeL deflnlLlon
3 ke|evant Lv|dence
AlLhough dlrecL evldence of Lhe llkely effecL of a fuLure prlce lncrease may someLlmes be
avallable lL usually wlll be necessary for Lhe ueparLmenL Lo lnfer Lhe llkely effecLs of a prlce
lncrease from varlous Lypes of rellable clrcumsLanLlal evldence 1he posLulaLed small buL
slgnlflcanL and nonLranslLory lncrease ln prlce provldes an ob[ecLlve sLandard by whlch Lo
analyze Lhe avallable evldence 1hus ln evaluaLlng geographlc subsLlLuLablllLy Lhe ueparLmenL
wlll conslder all relevanL evldence buL wlll glve parLlcular welghL Lo Lhe followlng facLors
1) 1he shlpmenL paLLerns of Lhe merglng flrm and of Lhose flrms wlLh whlch lL acLually
compeLes for sales
2) Lvldence of buyers havlng acLually consldered shlfLlng Lhelr purchases among sellers aL
dlfferenL geographlc locaLlons especlally lf Lhe shlfLs corresponded Lo changes ln relaLlve prlce
or oLher compeLlLlve varlables
3) ulfferences ln Lhe prlce movemenLs of Lhe relevanL producL or slmllarlLles ln prlce
movemenLs over a perlod of years LhaL are noL explalnable by common or parallel changes ln
facLors such as Lhe cosL of lnpuLs lncome or oLher varlables ln dlfferenL geographlc areas
4) 1ransporLaLlon cosLs
%CosLs of local dlsLrlbuLlon and
6) Lxcess capaclLy of flrms ouLslde Lhe locaLlon of Lhe merglng flrms
33 r|ce D|scr|m|nat|on
1he analysls of geographlc markeL deflnlLlon Lo Lhls polnL has assumed LhaL geographlc prlce
dlscrlmlnaLloncharglng dlfferenL prlces neL of LransporLaLlon cosLs for Lhe same producL Lo
buyers ln dlfferenL locaLlons for examplewould noL be posslble afLer Lhe merger As ln Lhe
case of producL markeL deflnlLlon however where prlce dlscrlmlnaLlon ls posslble
(11)
Lhe
ueparLmenL wlll conslder deflnlng addlLlonal narrower geographlc markeLs conslsLlng of
parLlcular locaLlons ln whlch a hypoLheLlcal monopollsL could proflLably lmpose a small buL
slgnlflcanL and nonLranslLory lncrease ln prlce
34 Iore|gn Compet|t|on
ln general Lhe foregolng sLandards wlll govern markeL deflnlLlon wheLher domesLlc or
lnLernaLlonal AlLhough volunLary or lnvolunLary quoLas may prevenL forelgn compeLlLors from
lncreaslng Lhelr lmporLs lnLo Lhe unlLed SLaLes ln response Lo a domesLlc prlce lncrease Lhe
ueparLmenL wlll noL exclude forelgn compeLlLors from Lhe relevanL markeL solely on Lhe basls
of Lhe quoLas 1hls ls prlmarlly because lL frequenLly ls dlfflculL Lo deLermlne and measure Lhe
effecLlveness and longevlLy of a parLlcular quoLa or any offseLLlng supply response from flrms
ln counLrles noL sub[ecL Lo Lhe quoLa 1he ueparLmenL wlll conslder effecLs of a quoLa as a
separaLe facLor ln lnLerpreLlng Lhe slgnlflcance of markeL shares and markeL concenLraLlon See
SecLlon 323 (Speclal lacLors AffecLlng lorelgn llrms)
4 Ca|cu|at|ng Market Shares
1he ueparLmenL normally wlll lnclude ln Lhe markeL Lhe LoLal sales or capaclLy of all domesLlc
flrms (or planLs) LhaL are ldenLlfled as belng ln Lhe markeL under SecLlons 22 and 23 MarkeL
shares can be expressed elLher ln dollar Lerms Lhrough measuremenL of sales shlpmenLs or
producLlon or ln physlcal Lerms Lhrough measuremenL of sales shlpmenLs producLlon
capaclLy or reserves As a pracLlcal maLLer Lhe avallablllLy of daLa ofLen wlll deLermlne Lhe
measuremenL basls When Lhe avallablllLy of daLa allows a cholce dollar sales or shlpmenLs
generally wlll be used lf branded or relaLlvely dlfferenLlaLed producLs are lnvolved and
physlcal capaclLy reserves or dollar producLlon generally wlll be used lf relaLlvely
homogeneous undlfferenLlaLed producLs are lnvolved
ln some cases however LoLal sales or capaclLy may oversLaLe Lhe compeLlLlve slgnlflcance of a
flrm 1he ueparLmenL wlll lnclude only Lhose sales llkely Lo be made or capaclLy llkely Lo be
used ln Lhe markeL ln response Lo a small buL slgnlflcanL and nonLranslLory lncrease ln prlce
for example wlLh respecL Lo flrms lncluded ln Lhe markeL under SecLlons 221 (roducLlon
SubsLlLuLlon) and 223 (lnLernal ConsumpLlon) Slmllarly a flrms capaclLy may be so
commlLLed elsewhere LhaL lL would noL be avallable Lo respond Lo an lncrease ln prlce ln Lhe
markeL ln such cases Lhe ueparLmenL also may lnclude a smaller parL of Lhe flrms sales or
capaclLy
1o Lhe exLenL avallable lnformaLlon permlLs markeL shares wlll be asslgned Lo forelgn
compeLlLors ln Lhe same way ln whlch Lhey are asslgned Lo domesLlc compeLlLors lf dollar
sales or shlpmenLs are used Lo measure shares of domesLlc flrms Lhe markeL shares of forelgn
flrms wlll be measured uslng dollar sales ln or shlpmenLs Lo Lhe relevanL markeL
(12)
lf physlcal
capaclLy reserves or dollar producLlon ls used for domesLlc flrms Lhe shares of forelgn flrms
wlll be measured ln Lerms of Lhe capaclLy or reserves llkely Lo be used Lo supply or producLlon
LhaL ls llkely Lo be shlpped Lo Lhe relevanL markeL ln response Lo a small buL slgnlflcanL and
nonLranslLory prlce lncrease lf shlpmenLs from a parLlcular counLry Lo Lhe unlLed SLaLes are
sub[ecL Lo a quoLa Lhe markeL shares asslgned Lo flrms ln LhaL counLry wlll noL exceed Lhe
amounL of shlpmenLs by such flrms allowed under Lhe quoLa CurrenL shlpmenLs raLher Lhan
capaclLy or reserves may be used for forelgn flrms lf lL ls lmposslble rellably Lo quanLlfy Lhe
proporLlon of Lhe flrms capaclLy reserves or producLlon LhaL would be devoLed Lo Lhe
relevanL markeL ln response Lo a small buL slgnlflcanL and nonLranslLory lncrease ln prlce
because of for example Lhe lack of avallable daLa regardlng forelgn capaclLy or Lhe
commlLmenL of such capaclLy Lo oLher markeLs llnally a slngle markeL share may be asslgned
Lo a counLry or group of counLrles lf flrms ln LhaL counLry or group of counLrles acL ln
coordlnaLlon or lf necesslLaLed by daLa llmlLaLlons
3 nCkI2CN1AL MLkGLkS
30 Where Lhe merglng flrms are ln Lhe same producL and geographlc markeL Lhe merger ls
horlzonLal ln such cases Lhe ueparLmenL wlll focus flrsL on Lhe posLmerger concenLraLlon of
Lhe markeL and Lhe lncrease ln concenLraLlon caused by Lhe merger lor mergers LhaL resulL ln
low markeL concenLraLlon or a relaLlvely sllghL lncrease ln concenLraLlon Lhe ueparLmenL wlll
be able Lo deLermlne wlLhouL a deLalled examlnaLlon of oLher facLors LhaL Lhe merger poses no
slgnlflcanL LhreaL Lo compeLlLlon ln oLher cases however Lhe ueparLmenL wlll proceed Lo
examlne a varleLy of oLher facLors relevanL Lo LhaL quesLlon
31 Concentrat|on and Market Shares
MarkeL concenLraLlon ls a funcLlon of Lhe number of flrms ln a markeL and Lhelr respecLlve
markeL shares
(13)
CLher Lhlngs belng equal concenLraLlon affecLs Lhe llkellhood LhaL one flrm
or a small group of flrms could successfully exerclse markeL power 1he smaller Lhe
percenLage of LoLal supply LhaL a flrm conLrols Lhe more severely lL musL resLrlcL lLs own
ouLpuL ln order Lo produce a glven prlce lncrease and Lhe less llkely lL ls LhaL an ouLpuL
resLrlcLlon wlll be proflLable lf collecLlve acLlon ls necessary an addlLlonal consLralnL applles
As Lhe number of flrms necessary Lo conLrol a glven percenLage of LoLal supply lncreases Lhe
dlfflculLles and cosLs of reachlng and enforclng consensus wlLh respecL Lo Lhe conLrol of LhaL
supply also lncrease
As an ald Lo Lhe lnLerpreLaLlon of markeL daLa Lhe ueparLmenL wlll use Lhe Perflndahl
Plrschman lndex (PPl) of markeL concenLraLlon 1he PPl ls calculaLed by summlng Lhe
squares of Lhe lndlvldual markeL shares of all Lhe flrms lncluded ln Lhe markeL under Lhe
sLandards ln SecLlon 2 of Lhese Culdellnes
(14)
unllke Lhe LradlLlonal fourflrm concenLraLlon
raLlo Lhe PPl reflecLs boLh Lhe dlsLrlbuLlon of Lhe markeL shares of Lhe Lop four flrms and Lhe
composlLlon of Lhe markeL ouLslde Lhe Lop four flrms lL also glves proporLlonaLely greaLer
welghL Lo Lhe markeL shares of Lhe larger flrms whlch probably accords wlLh Lhelr relaLlve
lmporLance ln any colluslve lnLeracLlon
1he ueparLmenL dlvldes Lhe specLrum of markeL concenLraLlon as measured by Lhe PPl lnLo
Lhree reglons LhaL can be broadly characLerlzed as unconcenLraLed (PPl below 1000)
moderaLely concenLraLed (PPl beLween 1000 and 1800) and hlghly concenLraLed (PPl above
1800) An emplrlcal sLudy by Lhe ueparLmenL of Lhe slze dlsperslon of flrms wlLhln markeLs
lndlcaLes LhaL Lhe crlLlcal PPl Lhresholds aL 1000 and 1800 correspond roughly Lo fourflrm
concenLraLlon raLlos of 30 percenL and 70 percenL respecLlvely AlLhough Lhe resulLlng reglons
provlde a useful formaL for merger analysls Lhe numerlcal dlvlslons suggesL greaLer preclslon
LhaL ls posslble wlLh Lhe avallable economlc Lools and lnformaLlon CLher Lhlngs belng equal
cases falllng [usL above and [usL below a Lhreshold presenL comparable compeLlLlve concerns
Moreover because concenLraLlon and markeL share daLa presenL a hlsLorlcal plcLure of Lhe
markeL Lhe ueparLmenL musL lnLerpreL such daLa ln llghL of Lhe relevanL clrcumsLances and
Lhe forwardlooklng ob[ecLlve of Lhe CuldellnesLo deLermlne llkely fuLure effecLs of a glven
merger
311 Genera| Standards
ln evaluaLlng horlzonLal mergers Lhe ueparLmenL wlll conslder boLh Lhe posLmerger markeL
concenLraLlon and Lhe lncrease ln concenLraLlon resulLlng from Lhe merger
(13)
1he llnk
beLween concenLraLlon and markeL power ls explalned above 1he lncrease ln concenLraLlon ls
relevanL Lo several key lssues AlLhough mergers among small flrms lncrease concenLraLlon
Lhey are less llkely Lo have anLlcompeLlLlve consequences Moreover even ln concenLraLed
markeLs lL ls deslrable Lo allow flrms some scope for merger acLlvlLy ln order Lo achleve
economles of scale and Lo permlL exlL from Lhe markeL Powever markeL share and
concenLraLlon daLa provlde only Lhe sLarLlng polnL for analyzlng Lhe compeLlLlve lmpacL of a
merger 8efore deLermlnlng wheLher Lo challenge a merger Lhe ueparLmenL wlll conslder all
oLher relevanL facLors LhaL perLaln Lo lLs compeLlLlve lmpacL
1he general sLandards for horlzonLal mergers are as follows
a) osLMerger PPl 8elow 1000 MarkeLs ln Lhls reglon generally would be consldered Lo be
unconcenLraLed 8ecause lmpllclL coordlnaLlon among flrms ls llkely Lo be dlfflculL and because
Lhe prohlblLlons of secLlon 1 of Lhe Sherman AcL are usually an adequaLe response Lo any
expllclL colluslon LhaL mlghL occur Lhe ueparLmenL wlll noL challenge mergers falllng ln Lhls
reglon excepL ln exLraordlnary clrcumsLances
b) osLMerger PPl 8eLween 1000 and 1800 8ecause Lhls reglon exLends from Lhe polnL aL
whlch Lhe compeLlLlve concerns assoclaLed wlLh concenLraLlon are ralsed Lo Lhe polnL aL whlch
Lhey become qulLe serlous generallzaLlon ls parLlcularly dlfflculL 1he ueparLmenL however ls
unllkely Lo challenge a merger ln Lhls reglon produclng an lncrease ln Lhe PPl of less Lhan 100
polnLs
(16)
1he ueparLmenL ls llkely Lo challenge mergers LhaL produce an lncrease ln Lhe PPl of
more Lhan 100 polnLs unless Lhe ueparLmenL concludes on Lhe basls of Lhe posLmerger PPl
Lhe lncrease ln Lhe PPl and Lhe presence or absence of Lhe facLors dlscussed ln SecLlons 32
33 34 and LhaL Lhe merger ls noL llkely subsLanLlally Lo lessen compeLlLlon
c) osLMerger PPl Above 1800 MarkeLs ln Lhls reglon generally are consldered Lo be hlghly
concenLraLed AddlLlonal concenLraLlon resulLlng from mergers ls a maLLer of slgnlflcanL
compeLlLlve concern 1he ueparLmenL ls unllkely however Lo challenge mergers ln Lhls reglon
produclng an lncrease ln Lhe PPl of less Lhan 30 polnLs
(17)
1he ueparLmenL ls llkely Lo
challenge mergers LhaL produce an lncrease ln Lhe PPl of more Lhan 30 polnLs unless Lhe
ueparLmenL concludes on Lhe basls of Lhe posLmerger PPl Lhe lncrease ln Lhe PPl and Lhe
presence or absence of Lhe facLors dlscussed ln SecLlons 32 33 34 and LhaL Lhe merger
ls noL llkely subsLanLlally Lo lessen compeLlLlon Powever lf Lhe lncrease ln Lhe PPl exceeds
100 and Lhe posLmerger PPl subsLanLlally exceeds 1800 only ln exLraordlnary cases wlll such
facLors esLabllsh LhaL Lhe merger ls noL llkely subsLanLlally Lo lessen compeLlLlon
31 Lead|ng I|rm rov|so
ln some cases Lyplcally where one of Lhe merglng flrms ls small mergers LhaL may creaLe or
enhance Lhe markeL power of a slngle domlnanL flrm could pass scruLlny under Lhe sLandards
sLaLed ln SecLlon 311 noLwlLhsLandlng Lhose sLandards Lhe ueparLmenL ls llkely Lo challenge
Lhe merger of any flrm wlLh a markeL share of aL leasL one percenL wlLh Lhe leadlng flrm ln Lhe
markeL provlded Lhe leadlng flrm has a markeL share LhaL ls aL leasL 33 percenL 8ecause Lhe
ease and proflLablllLy of colluslon are of llLLle relevance Lo Lhe ablllLy of a slngle domlnanL flrm
Lo exerclse markeL power Lhe ueparLmenL wlll noL conslder Lhe presence or absence of Lhe
facLors dlscussed ln SecLlon 34 because Lhey relaLe Lo Lhe llkellhood of colluslon 1he
ueparLmenL wlll conslder however Lhe facLors ln SecLlons 32 33 and because Lhey are
relevanL Lo Lhe compeLlLlve concerns assoclaLed wlLh a leadlngflrm merger
3 Iactors Affect|ng the S|gn|f|cance of Market Shares and Concentrat|on
ln a varleLy of slLuaLlons markeL share and markeL concenLraLlon daLa may elLher undersLaLe
or oversLaLe Lhe llkely fuLure compeLlLlve slgnlflcance of a flrm or flrms ln Lhe markeL 1he
followlng are examples of such slLuaLlons
31 Chang|ng Market Cond|t|ons
MarkeL concenLraLlon and markeL share daLa of necesslLy are based on hlsLorlcal evldence
Powever recenL or ongolng changes ln Lhe markeL may lndlcaLe LhaL Lhe currenL markeL
share of a parLlcular flrm elLher undersLaLes or oversLaLes Lhe flrms fuLure compeLlLlve
slgnlflcance lor example lf a new Lechnology LhaL ls lmporLanL Lo longLerm compeLlLlve
vlablllLy ls noL avallable Lo a parLlcular flrm Lhe ueparLmenL may conclude LhaL Lhe hlsLorlcal
markeL share of Lhe flrm oversLaLes Lhe flrms fuLure compeLlLlve slgnlflcance 1he ueparLmenL
wlll conslder reasonably predlcLable effecLs of recenL or ongolng changes ln markeL condlLlons
ln lnLerpreLlng markeL concenLraLlon and markeL share daLa
3 I|nanc|a| Cond|t|on of I|rms |n the ke|evant Market
1he ueparLmenL wlll conslder Lhe flnanclal condlLlon of a merglng flrm or any flrm ln Lhe
relevanL markeL Lo Lhe exLenL LhaL lL ls relevanL Lo an analysls of Lhe flrms llkely fuLure
compeLlLlve slgnlflcance
(18)
lf Lhe flnanclal dlfflculLles of a flrm cannoL be explalned as
phenomena of for example Lhe buslness cycle buL clearly reflecL an underlylng sLrucLural
weakness of Lhe flrm Lhe flrms currenL markeL share may oversLaLe lLs llkely fuLure
compeLlLlve slgnlflcance lor example a flrms currenL markeL share may oversLaLe lLs fuLure
compeLlLlve slgnlflcance lf LhaL flrm has chronlc flnanclal dlfflculLles resulLlng from obsoleLe
producLlve faclllLles ln a markeL experlenclng a longLerm decllne ln demand
33 Spec|a| Iactors Affect|ng Iore|gn I|rms
AcLual lmporL sales shlpmenL daLa or capaclLy ln some cases may Lend Lo oversLaLe Lhe
relaLlve compeLlLlve slgnlflcance of forelgn flrms 1hls wlll be Lhe case for example lf forelgn
flrms are sub[ecL Lo quoLas (lmposed elLher by Lhe unlLed SLaLes or by Lhelr own counLry) LhaL
effecLlvely llmlL Lhe volume of Lhelr lmporLs lnLo Lhls counLry lorelgn flrms LhaL are sub[ecL Lo
such quoLas generally cannoL lncrease lmporLs lnLo Lhe unlLed SLaLes ln response Lo a
domesLlc prlce lncrease ln Lhe case of resLralnLs LhaL llmlL lmporLs Lo some percenLage of Lhe
LoLal amounL of Lhe producL sold ln Lhe unlLed SLaLes (le percenLage quoLas) a domesLlc
prlce lncrease LhaL reduces domesLlc consumpLlon would acLually reduce Lhe volume of
lmporLs lnLo Lhe unlLed SLaLes 1hus acLual lmporL sales and shlpmenL daLa wlll Lend Lo
oversLaLe Lhe compeLlLlve slgnlflcance of flrms ln counLrles sub[ecL Lo blndlng quoLas
(19)
Less
slgnlflcanL buL sLlll lmporLanL facLors such as oLher Lypes of Lrade resLralnLs and changes ln
exchange raLes also may cause acLual lmporL sales and shlpmenL daLa Lo oversLaLe Lhe fuLure
compeLlLlve slgnlflcance of forelgn flrms 1o Lhe exLenL LhaL Lhe relaLlve compeLlLlve
slgnlflcance of lmporLs ls oversLaLed by Lhe currenL markeL shares of forelgn flrms Lhe relaLlve
compeLlLlve slgnlflcance of domesLlc flrms concomlLanLly wlll be undersLaLed
ln addlLlon llmlLaLlons on avallable daLa concernlng Lhe amounL of forelgn capaclLy LhaL could
be devoLed Lo Lhe unlLed SLaLes ln response Lo a small buL slgnlflcanL and nonLranslLory
lncrease ln prlce may requlre Lhe ueparLmenL Lo use markeL share daLa LhaL undersLaLe Lhe
Lrue compeLlLlve slgnlflcance of forelgn compeLlLors uesplLe Lhe lnablllLy Lo obLaln daLa Lo
quanLlfy preclsely Lhe supply response of forelgn compeLlLors Lhe ueparLmenL wlll conslder
sLrong quallLaLlve evldence LhaL for example Lhere ls slgnlflcanL worldwlde excess capaclLy
LhaL could readlly be devoLed Lo Lhe unlLed SLaLes 1o Lhe exLenL markeL shares based on Lhe
besL avallable evldence Lend Lo undersLaLe Lhe compeLlLlve slgnlflcance of forelgn compeLlLors
Lhe relaLlve compeLlLlve slgnlflcance of domesLlc flrms may be oversLaLed
ln all cases addressed by SecLlon 323 of Lhe Culdellnes Lhe ueparLmenL wlll make approprlaLe
ad[usLmenLs ln lLs analysls of Lhe avallable daLa Lo reflecL more accuraLely acLual compeLlLlve
concerns
33 Lase of Lntry
lf enLry lnLo a markeL ls so easy LhaL exlsLlng compeLlLors could noL succeed ln ralslng prlce for
any slgnlflcanL perlod of Llme Lhe ueparLmenL ls unllkely Lo challenge mergers ln LhaL markeL
under Lhe sLandards ln SecLlon 221 flrms LhaL do noL currenLly sell Lhe relevanL producL buL
LhaL could easlly and economlcally sell lL uslng exlsLlng faclllLles are lncluded ln Lhe markeL and
are asslgned a markeL share 1hls secLlon conslders Lhe addlLlonal compeLlLlve effecLs of 1)
producLlon subsLlLuLlon requlrlng slgnlflcanL modlflcaLlons of exlsLlng faclllLles and 2) enLry
Lhrough consLrucLlon of new faclllLles
(20)

ln assesslng Lhe ease of enLry lnLo a markeL Lhe ueparLmenL wlll conslder Lhe llkellhood and
probable magnlLude of enLry ln response Lo a small buL slgnlflcanL and nonLranslLory
lncrease ln prlce
(21)
8oLh Lhe prlce Lo be lncreased and whaL consLlLuLes a small buL slgnlflcanL
and nonLranslLory lncrease ln prlce wlll be deLermlned as Lhey are ln producL markeL
deflnlLlon excepL LhaL a Lwoyear Llme perlod generally wlll be used
(22)
1he more dlfflculL
enLry lnLo Lhe markeL ls Lhe more llkely Lhe ueparLmenL ls Lo challenge Lhe merger
34 Cther Iactors
A varleLy of oLher facLors affecL Lhe llkellhood LhaL a merger wlll creaLe enhance or faclllLaLe
Lhe exerclse of markeL power ln evaluaLlng mergers Lhe ueparLmenL wlll conslder Lhe
followlng facLors among oLhers as Lhey relaLe Lo Lhe ease and proflLablllLy of colluslon Where
relevanL Lhe facLors are mosL llkely Lo be lmporLanL where Lhe ueparLmenLs declslon wheLher
Lo challenge a merger ls oLherwlse close
341 Nature of the roduct and 1erms of Sa|e
3411 nomogene|tyneterogene|ty of the ke|evant roduct Genera||y
ln a markeL wlLh a homogeneous and undlfferenLlaLed producL a carLel need esLabllsh only a
slngle prlcea clrcumsLance LhaL faclllLaLes reachlng consensus and deLecLlng devlaLlon As Lhe
producLs whlch consLlLuLe Lhe relevanL producL markeL become more numerous
heLerogeneous or dlfferenLlaLed however Lhe problems faclng a carLel become more
complex lnsLead of a slngle prlce lL may be necessary Lo esLabllsh and enforce a complex
schedule of prlces correspondlng Lo gradaLlons ln acLual or percelved quallLy aLLrlbuLes among
Lhe compeLlng producLs
(23)

roducL varlaLlon ls arguably relevanL ln all cases buL pracLlcal conslderaLlons dlcLaLe a more
llmlLed use of Lhe facLor 1here ls nelLher an ob[ecLlve lndex of producL varlaLlon nor an
emplrlcal basls for lLs use ln drawlng flne dlsLlncLlons among cases As a resulL Lhls facLor wlll
be Laken lnLo accounL only ln relaLlvely exLreme cases where boLh ldenLlflcaLlon and effecL are
more cerLaln lor example when Lhe relevanL producL ls compleLely homogeneous and
undlfferenLlaLed Lhe ueparLmenL ls more llkely Lo challenge Lhe merge Conversely when Lhe
relevanL producL ls very heLerogeneous or sold sub[ecL Lo complex conflguraLlon opLlons or
cusLomlzed producLlon Lhe ueparLmenL ls less llkely Lo challenge Lhe
merger
(24)

Cver a slgnlflcanL mlddle range of Lhe specLrum of producL varlaLlon Lhls facLor ls less llkely Lo
affecL Lhe ueparLmenLs analysls
341 Degree of D|fference 8etween the roducts and Locat|ons |n the Market and the Next
8est Subst|tutes
1he markeL deflnlLlon sLandards sLaLed ln SecLlon 2 of Lhese Culdellnes requlre drawlng
relaLlvely brlghL llnes ln order Lo deLermlne Lhe producLs and sellers Lo be consldered ln
evaluaLlng a merger lor example ln deflnlng Lhe relevanL producL all good subsLlLuLes ln
demand are lncluded 1he proflLablllLy of any colluslon LhaL mlghL occur wlll depend ln parL
however on Lhe quallLy of Lhe nexLbesL subsLlLuLe 1haL ls lL maLLers wheLher Lhe nexLbesL
subsLlLuLe ls only sllghLly or slgnlflcanLly lnferlor Lo Lhe lasL producL lncluded ln Lhe relevanL
producL Slmllarly lL maLLers wheLher Lhe nexLmosLdlsLanL seller ls only sllghLly or
slgnlflcanLly farLher away Lhan Lhe lasL seller lncluded ln Lhe geographlc markeL 1he larger Lhe
gap aL Lhe edge of Lhe producL and geographlc markeLs Lhe more llkely Lhe ueparLmenL ls Lo
challenge Lhe merger
3413 S|m||ar|t|es and D|fferences |n the roducts and Locat|ons of the Merg|ng I|rms
1here also may be relevanL comparlsons among Lhe producLs or sellers lncluded ln Lhe markeL
Where producLs ln a relevanL markeL are dlfferenLlaLed or sellers are spaLlally dlspersed
lndlvldual sellers usually compeLe more dlrecLly wlLh some rlvals Lhan wlLh oLhers ln markeLs
wlLh hlghly dlfferenLlaLed producLs Lhe ueparLmenL wlll conslder Lhe exLenL Lo whlch
consumers percelve Lhe producLs of Lhe merglng flrms Lo be relaLlvely beLLer or worse
subsLlLuLes for one anoLher Lhan for oLher producLs ln Lhe markeL ln markeLs wlLh spaLlally
dlspersed sellers and slgnlflcanL LransporLaLlon cosLs Lhe ueparLmenL wlll conslder Lhe relaLlve
proxlmlLy of Lhe merglng flrms lf Lhe producLs or planLs of Lhe merglng flrms are parLlcularly
good subsLlLuLes for one anoLher Lhe ueparLmenL ls more llkely Lo challenge Lhe merger
34 Informat|on About Spec|f|c 1ransact|ons and 8uyer Market Character|st|cs
Colluslve agreemenLs are more llkely Lo perslsL lf parLlclpaLlng flrms can qulckly deLecL and
reLallaLe agalnsL devlaLlons from Lhe agreed prlces or oLher condlLlons Such devlaLlons are
easlesL Lo deLecL and Lherefore leasL llkely Lo occur ln markeLs where deLalled lnformaLlon
abouL speclflc LransacLlons or lndlvldual prlce or ouLpuL levels ls readlly avallable Lo
compeLlLors 1he ueparLmenL ls more llkely Lo challenge a merger lf such deLalled lnformaLlon
ls avallable Lo compeLlLors wheLher Lhe lnformaLlon comes from an exchange among sellers
publlc dlsclosure by buyers reporLlng by Lhe press or a governmenL agency or some oLher
source
CerLaln buyer markeL characLerlsLlcs also may faclllLaLe deLecLlon of devlaLlon from colluslve
agreemenLs lf orders for Lhe relevanL producL are frequenL regular and small relaLlve Lo Lhe
LoLal ouLpuL of a Lyplcal flrm ln Lhe markeL colluslon ls more llkely Lo succeed because Lhe
beneflLs of deparLlng from Lhe colluslve agreemenL ln any slngle LransacLlon are llkely Lo be
small relaLlve Lo Lhe poLenLlal cosLs ln order Lo lncrease lLs sales slgnlflcanLly ln such
clrcumsLances a seller would have Lo deparL from Lhe colluslve agreemenL on a large number
of orders Lach such sale Lakes cusLomers away from oLher parLles Lo Lhe agreemenL a facL
LhaL ls parLlcularly evldenL when demand ls sLable or decllnlng As a resulL Lhe chances of
deLecLlon and effecLlve response by oLher sellers lncrease wlLh Lhe number of such sales 1he
ueparLmenL ls more llkely Lo challenge a merger where such buyer markeL characLerlsLlcs
exlsL
343 Ab|||ty of Sma|| or Ir|nge Se||ers to Increase Sa|es
Colluslon ls less llkely Lo occur lf small or frlnge sellers ln Lhe markeL are able proflLably Lo
lncrease ouLpuL subsLanLlally ln response Lo a small buL slgnlflcanL and nonLranslLory
lncrease ln prlce and Lhus Lo undermlne a carLel 1he ueparLmenL ls less llkely Lo challenge a
merger lf small or frlnge flrms currenLly are able Lo expand slgnlflcanLly Lhelr sales aL
lncremenLal cosLs LhaL are approxlmaLely equal Lo Lhelr lncremenLal cosLs experlenced aL
currenL levels of ouLpuL
344 Conduct of I|rms |n the Market
1he ueparLmenL ls more llkely Lo challenge a merger ln Lhe followlng clrcumsLances
a) llrms ln Lhe markeL prevlously have been found Lo have engaged ln horlzonLal colluslon
regardlng prlce LerrlLorles or cusLomers and Lhe characLerlsLlcs of Lhe markeL have noL
changed appreclably slnce Lhe mosL recenL flndlng 1he addlLlonal concenLraLlon resulLlng from
Lhe merger could make expllclL colluslon more dlfflculL Lo deLecL or LaclL colluslon more
feaslble
b) Cne or more of Lhe followlng Lypes of pracLlces are adopLed by subsLanLlally all of Lhe flrms
ln Lhe markeL 1) mandaLory dellvered prlclng 2) exchange of prlce or ouLpuL lnformaLlon ln a
form LhaL could asslsL flrms ln seLLlng or enforclng an agreed prlce 3) collecLlve
sLandardlzaLlon of producL varlables on whlch Lhe flrms could compeLe and 4) prlce proLecLlon
clauses AlLhough noL ob[ecLlonable under all clrcumsLances Lhese Lypes of pracLlces Lend Lo
make colluslon easler and Lhelr wldespread adopLlon by Lhe flrms ln Lhe markeL ralses some
concern LhaL colluslon may already exlsL
c)1he flrm Lo be acqulred has been an unusually dlsrupLlve and compeLlLlve lnfluence ln Lhe
markeL 8efore lnvoklng Lhls facLor Lhe ueparLmenL wlll deLermlne wheLher Lhe markeL ls one
ln whlch performance mlghL plauslbly deLerloraLe because of Lhe ellmlnaLlon of one dlsrupLlve
flrm
When Lhe markeL ln whlch Lhe proposed merger would occur ls currenLly performlng
noncompeLlLlvely Lhe ueparLmenL ls more llkely Lo challenge Lhe merger noncompeLlLlve
performance suggesLs LhaL Lhe flrms ln Lhe markeL already have succeeded ln overcomlng aL
leasL Lo some exLenL Lhe obsLacles Lo effecLlve colluslon lncreased concenLraLlon of such a
markeL Lhrough merger could furLher faclllLaLe Lhe colluslon LhaL already exlsLs When Lhe
markeL ln whlch Lhe proposed merger would occur ls currenLly performlng compeLlLlvely
however Lhe ueparLmenL wlll apply lLs ordlnary sLandards of revlew 1he facL LhaL Lhe markeL
ls currenLly compeLlLlve casLs llLLle llghL on Lhe llkely effecL of Lhe merger
ln evaluaLlng Lhe performance of a markeL Lhe ueparLmenL wlll conslder any relevanL
evldence buL wlll glve parLlcular welghL Lo Lhe followlng evldence of posslble noncompeLlLlve
performance when Lhe facLors are found ln con[uncLlon
a) SLable relaLlve markeL shares of Lhe leadlng flrms ln recenL years
b) uecllnlng comblned markeL share of Lhe leadlng flrms ln recenL years and
c) roflLablllLy of Lhe leadlng flrms over subsLanLlal perlods of Llme LhaL slgnlflcanLly exceeds
LhaL of flrms ln lndusLrles comparable ln caplLal lnLenslLy and rlsk
3S Lff|c|enc|es
1he prlmary beneflL of mergers Lo Lhe economy ls Lhelr efflclencyenhanclng poLenLlal whlch
can lncrease Lhe compeLlLlveness of flrms and resulL ln lower prlces Lo consumers 8ecause Lhe
anLlLrusL laws and Lhus Lhe sLandards of Lhe Culdellnes are deslgned Lo proscrlbe only
mergers LhaL presenL a slgnlflcanL danger Lo compeLlLlon Lhey do noL presenL an obsLacle Lo
mosL mergers As a consequence ln Lhe ma[orlLy of cases Lhe Culdellnes wlll allow flrms Lo
achleve avallable efflclencles Lhrough mergers wlLhouL lnLerference from Lhe ueparLmenL
Some mergers LhaL Lhe ueparLmenL oLherwlse mlghL challenge may be reasonably necessary
Lo achleve slgnlflcanL neL efflclencles lf Lhe parLles Lo Lhe merger esLabllsh by clear and
convlnclng evldence LhaL a merger wlll achleve such efflclencles Lhe ueparLmenL wlll conslder
Lhose efflclencles ln decldlng wheLher Lo challenge Lhe merger
Cognlzable efflclencles lnclude buL are noL llmlLed Lo achlevlng economles of scale beLLer
lnLegraLlon of producLlon faclllLles planL speclallzaLlon lower LransporLaLlon cosLs and slmllar
efflclencles relaLlng Lo speclflc manufacLurlng servlclng or dlsLrlbuLlon operaLlons of Lhe
merglng flrms 1he ueparLmenL may also conslder clalmed efflclencles resulLlng from
reducLlons ln general selllng admlnlsLraLlve and overhead expenses or LhaL oLherwlse do noL
relaLe Lo speclflc manufacLurlng servlclng or dlsLrlbuLlon operaLlons of Lhe merglng flrms
alLhough as a pracLlcal maLLer Lhese Lypes of efflclencles may be dlfflculL Lo demonsLraLe ln
addlLlon Lhe ueparLmenL wlll re[ecL clalms of efflclencles lf equlvalenL or comparable savlngs
can reasonably be achleved by Lhe parLles Lhrough oLher means 1he parLles musL esLabllsh a
greaLer level of expecLed neL efflclencles Lhe more slgnlflcanL are Lhe compeLlLlve rlsks
ldenLlfled ln SecLlon 3
4 nCkI2CN1AL LIILC1 IkCM NCNnCkI2CN1AL MLkGLkS
40 8y deflnlLlon nonhorlzonLal mergers lnvolve flrms LhaL do noL operaLe ln Lhe same
markeL lL necessarlly follows LhaL such mergers produce no lmmedlaLe change ln Lhe level of
concenLraLlon ln any relevanL markeL as deflned ln SecLlon 2 of Lhese Culdellnes AlLhough
nonhorlzonLal mergers are less llkely Lhan horlzonLal mergers Lo creaLe compeLlLlve problems
Lhey are noL lnvarlably lnnocuous 1hls secLlon descrlbes Lhe prlnclpal Lheorles under whlch
Lhe ueparLmenL ls llkely Lo challenge nonhorlzonLal mergers
41 L||m|nat|on of Spec|f|c otent|a| Lntrants
411 1he 1heory of otent|a| Compet|t|on
ln some clrcumsLances Lhe nonhorlzonLal merger
(23)
of a flrm already ln a markeL (Lhe
acqulred flrm) wlLh a poLenLlal enLranL Lo LhaL markeL (Lhe acqulrlng flrm)
(26)
may adversely
affecL compeLlLlon ln Lhe markeL lf Lhe merger effecLlvely removes Lhe acqulrlng flrm from Lhe
edge of Lhe markeL lL could have elLher of Lhe followlng effecLs
4111 narm to erce|ved otent|a| Compet|t|on
8y ellmlnaLlng a slgnlflcanL presenL compeLlLlve LhreaL LhaL consLralns Lhe behavlor of Lhe flrms
already ln Lhe markeL Lhe merger could resulL ln an lmmedlaLe deLerloraLlon ln markeL
performance 1he economlc Lheory of llmlL prlclng suggesLs LhaL monopollsLs and groups of
colludlng flrms may flnd lL proflLable Lo resLraln Lhelr prlclng ln order Lo deLer new enLry LhaL ls
llkely Lo push prlces even lower by addlng capaclLy Lo Lhe markeL lf Lhe acqulrlng flrm had
unlque advanLages ln enLerlng Lhe markeL Lhe flrms ln Lhe markeL mlghL be able Lo seL a new
and hlgher prlce afLer Lhe LhreaL of enLry by Lhe acqulrlng flrm was ellmlnaLed by Lhe merger
411 narm to Actua| otent|a| Compet|t|on
8y ellmlnaLlng Lhe posslblllLy of enLry by Lhe acqulrlng flrm ln a more procompeLlLlve manner
Lhe merger could resulL ln a losL opporLunlLy for lmprovemenL ln markeL performance resulLlng
from Lhe addlLlon of a slgnlflcanL compeLlLor 1he more procompeLlLlve alLernaLlves lnclude
boLh new enLry and enLry Lhrough a Loehold acqulslLlon of a presenL small compeLlLor
41 ke|at|on 8etween erce|ved and Actua| otent|a| Compet|t|on
lf lL were always proflLmaxlmlzlng for lncumbenL flrms Lo seL prlce ln such a way LhaL all enLry
was deLerred and lf lnformaLlon and coordlnaLlon were sufflclenL Lo lmplemenL Lhls sLraLegy
harm Lo percelved poLenLlal compeLlLlon would be Lhe only compeLlLlve problem Lo address ln
pracLlce however acLual poLenLlal compeLlLlon has lndependenL lmporLance llrms already ln
Lhe markeL may noL flnd lL opLlmal Lo seL prlce low enough Lo deLer all enLry moreover Lhose
flrms may mls[udge Lhe enLry advanLages of a parLlcular flrm and Lherefore Lhe prlce
necessary Lo deLer lLs enLry
(27)

413 Lnforcement Standards
8ecause of Lhe close relaLlonshlp beLween percelved poLenLlal compeLlLlon and acLual
poLenLlal compeLlLlon Lhe ueparLmenL wlll evaluaLe mergers LhaL ralse elLher Lype of poLenLlal
compeLlLlon concern under a slngle sLrucLural analysls analogous Lo LhaL applled Lo horlzonLal
mergers 1he ueparLmenL flrsL wlll conslder a seL of ob[ecLlve facLors deslgned Lo ldenLlfy cases
ln whlch harmful effecLs are plauslble ln such cases Lhe ueparLmenL Lhen wlll conducL a more
focused lnqulry Lo deLermlne wheLher Lhe llkellhood and magnlLude of Lhe posslble harm
[usLlfy a challenge Lo Lhe merger ln Lhls conLexL Lhe ueparLmenL wlll conslder any speclflc
evldence presenLed by Lhe merglng parLles Lo show LhaL Lhe lnferences of compeLlLlve harm
drawn from Lhe ob[ecLlve facLors are unrellable
1he facLors LhaL Lhe ueparLmenL wlll conslder are as follows
4131 Market Concentrat|on
8arrlers Lo enLry are unllkely Lo affecL markeL performance lf Lhe sLrucLure of Lhe markeL ls
oLherwlse noL conduclve Lo monopollzaLlon of colluslon Adverse compeLlLlve effecLs are llkely
only lf overall concenLraLlon or Lhe largesL flrms markeL share ls hlgh 1he ueparLmenL ls
unllkely Lo challenge a poLenLlal compeLlLlon merger unless overall concenLraLlon of Lhe
acqulred flrms markeL ls above 1800 PPl (a somewhaL lower concenLraLlon wlll sufflce lf one
or more of Lhe facLors dlscussed ln SecLlon 34 lndlcaLe LhaL effecLlve colluslon ln Lhe markeL ls
parLlcularly llkely) CLher Lhlngs belng equal Lhe ueparLmenL ls lncreaslngly llkely Lo challenge
a merger as Lhls Lhreshold ls exceeded
413 Cond|t|ons of Lntry Genera||y
lf enLry Lo Lhe markeL ls generally easy Lhe facL LhaL enLry ls marglnally easler for one or more
flrms ls unllkely Lo affecL Lhe behavlor of Lhe flrms ln Lhe markeL 1he ueparLmenL ls unllkely Lo
challenge a poLenLlal compeLlLlon merger when new enLry lnLo Lhe acqulrlng flrms markeL can
be accompllshed by flrms wlLhouL any speclflc enLry advanLages under Lhe condlLlons sLaLed ln
SecLlon 33 CLher Lhlngs belng equal Lhe ueparLmenL ls lncreaslngly llkely Lo challenge a
merger as Lhe dlfflculLy of enLry lncrease above LhaL Lhreshold
4133 1he Acqu|r|ng I|rms Lntry Advantage
lf more Lhan a few flrms have Lhe same or a comparable advanLage ln enLerlng Lhe acqulred
flrms markeL Lhe ellmlnaLlon of one flrm ls unllkely Lo have any adverse compeLlLlve effecL
1he oLher slmllarly slLuaLed flrm or flrms would conLlnue Lo exerL a presenL resLralnlng
lnfluence or lf enLry would be proflLable would recognlze Lhe opporLunlLy and enLer 1he
ueparLmenL ls unllkely Lo challenge a poLenLlal compeLlLlon merger lf Lhe enLry advanLage
ascrlbed Lo Lhe acqulrlng flrm (or anoLher advanLage of comparable lmporLance) ls also
possessed by Lhree or more oLher flrms CLher Lhlngs belng equal Lhe ueparLmenL ls
lncreaslngly llkely Lo challenge a merger as Lhe number of oLher slmllarlly slLuaLed flrms
decreases below Lhree and as Lhe exLenL of Lhe enLry advanLage over nonadvanLaged flrms
lncreases
lf Lhe evldence of llkely acLual enLry by Lhe acqulrlng flrm ls parLlcularly sLrong
(28)

however Lhe ueparLmenL may challenge a poLenLlal compeLlLlon merger noLwlLhsLandlng Lhe
presence of Lhree of more flrms LhaL are ob[ecLlvely slmllarly slLuaLed ln such cases Lhe
ueparLmenL wlll deLermlne Lhe llkely scale of enLry uslng elLher Lhe flrms own documenLs or
Lhe mlnlmum efflclenL scale ln Lhe lndusLry 1he ueparLmenL wlll Lhen evaluaLe Lhe merger
much as lL would a horlzonLal merger beLween a flrm Lhe slze of Lhe llkely scale of enLry and
Lhe acqulred flrm
4134 1he Market Share of the Acqu|red I|rm
LnLry Lhrough Lhe acqulslLlon of a relaLlvely small flrm ln Lhe markeL may have a compeLlLlve
effecL comparable Lo new enLry Small flrms frequenLly play perlpheral roles ln colluslve
lnLeracLlons and Lhe parLlcular advanLages of Lhe acqulrlng flrm may converL a frlnge flrm lnLo
a slgnlflcanL facLor ln Lhe markeL
(29)

1he ueparLmenL ls unllkely Lo challenge a poLenLlal compeLlLlon merger when Lhe acqulred
flrm has a markeL share of flve percenL or less CLher Lhlngs belng equal Lhe ueparLmenL ls
lncreaslngly llkely Lo challenge a merger as Lhe markeL share of Lhe acqulred flrm lncreases
above Lhe Lhreshold 1he ueparLmenL ls llkely Lo challenge any merger saLlsfylng Lhe oLher
condlLlons ln whlch Lhe acqulred flrm has a markeL share of 20 percenL of more
413S Lff|c|enc|es
As ln Lhe case of horlzonLal mergers Lhe ueparLmenL wlll conslder expecLed efflclencles ln
deLermlnlng wheLher Lo challenge a poLenLlal compeLlLlon merger See SecLlon 33
(Lfflclencles)
4 Compet|t|ve rob|ems from Vert|ca| Mergers
41 8arr|ers to Lntry from Vert|ca| Mergers
ln cerLaln clrcumsLances Lhe verLlcal lnLegraLlon resulLlng from verLlcal mergers could creaLe
compeLlLlvely ob[ecLlonable barrlers Lo enLry SLaLed generally Lhree condlLlons are necessary
(buL noL sufflclenL) for Lhls problem Lo exlsL llrsL Lhe degree of verLlcal lnLegraLlon beLween
Lhe Lwo markeLs musL be so exLenslve LhaL enLranLs Lo one markeL (Lhe prlmary markeL) also
would have Lo enLer Lhe oLher markeL (Lhe secondary markeL)
(30)
slmulLaneously Second Lhe
requlremenL of enLry aL Lhe secondary level musL make enLry aL Lhe prlmary level slgnlflcanLly
more dlfflculL and less llkely Lo occur llnally Lhe sLrucLure and oLher characLerlsLlcs of Lhe
prlmary markeL musL be oLherwlse so conduclve Lo noncompeLlLlve performance LhaL Lhe
lncreased dlfflculLy of enLry ls llkely Lo affecL lLs performance 1he followlng sLandards sLaLe
Lhe crlLerla by whlch Lhe ueparLmenL wlll deLermlne wheLher Lhese condlLlons are saLlsfled
411 Need for 1woLeve| Lntry
lf Lhere ls sufflclenL unlnLegraLed capaclLy
(31)

ln Lhe secondary markeL new enLranLs Lo Lhe prlmary markeL would noL have Lo enLer boLh
markeLs slmulLaneously 1he ueparLmenL ls unllkely Lo challenge a merger on Lhls ground
where posLmerger sales (or purchases) by unlnLegraLed flrms ln Lhe secondary markeL would
be sufflclenL Lo servlce Lwo mlnlmumefflclenLscale planLs ln Lhe prlmary markeL When Lhe
oLher condlLlons are saLlsfled Lhe ueparLmenL ls lncreaslngly llkely Lo challenge a merger as
Lhe unlnLegraLed capaclLy decllnes below Lhls level
41 Increased D|ff|cu|ty of S|mu|taneous Lntry of 8oth Markets
1he relevanL quesLlon ls wheLher Lhe need for slmulLaneous enLry Lo Lhe secondary markeL
glves rlse Lo a subsLanLlal lncremenLal dlfflculLy as compared Lo enLry lnLo Lhe prlmary markeL
alone lf enLry aL Lhe secondary level ls easy ln absoluLe Lerms Lhe requlremenL of
slmulLaneous enLry Lo LhaL markeL ls unllkely adversely Lo affecL enLry Lo Lhe prlmary markeL
WhaLever Lhe dlfflculLles of enLry lnLo Lhe prlmary markeL may be Lhe ueparLmenL ls unllkely
Lo challenge a merger on Lhls ground lf new enLry lnLo Lhe secondary markeL can be
accompllshed under Lhe condlLlons sLaLed ln SecLlon 33
(32)
When enLry ls noL posslble under
Lhose condlLlons Lhe ueparLmenL ls lncreaslngly concerned abouL verLlcal mergers as Lhe
dlfflculLy of enLerlng Lhe secondary markeL lncreases 1he ueparLmenL however wlll lnvoke
Lhls Lheory only where Lhe need for secondary markeL enLry slgnlflcanLly lncreases Lhe cosLs
(whlch may Lake Lhe form of rlsks) of prlmary markeL enLry
More caplLal ls necessary Lo enLer Lwo markeLs Lhan Lo enLer one SLandlng alone however
Lhls addlLlonal caplLal requlremenL does noL consLlLuLe a barrler Lo enLry Lo Lhe prlmary
markeL lf Lhe necessary funds were avallable aL a cosL commensuraLe wlLh Lhe level of rlsk ln
Lhe secondary markeL Lhere would be no adverse effecL ln some cases however lenders may
doubL LhaL wouldbe enLranLs Lo Lhe prlmary markeL have Lhe necessary skllls and knowledge
Lo succeed ln Lhe secondary markeL and Lherefore ln Lhe prlmary markeL ln order Lo
compensaLe for Lhls rlsk of fallure lenders mlghL charge a hlgher raLe for Lhe necessary caplLal
1hls problem becomes lncreaslngly slgnlflcanL as a hlgher percenLage of Lhe caplLal asseLs ln
Lhe secondary markeL are longllved and speclallzed Lo LhaL markeL and Lherefore dlfflculL Lo
recover ln Lhe evenL of fallure ln evaluaLlng Lhe llkellhood of lncreased barrlers Lo enLry
resulLlng from lncreased cosL of caplLal Lherefore Lhe ueparLmenL wlll conslder boLh Lhe
degree of slmllarlLy ln Lhe essenLlal skllls ln Lhe prlmary and secondary markeLs and Lhe
economlc llfe and degree of speclallzaLlon of Lhe caplLal asseLs ln Lhe secondary markeL
Lconomles of scale ln Lhe secondary markeL may consLlLuLe an addlLlonal barrler Lo enLry Lo
Lhe prlmary markeL ln some slLuaLlons requlrlng Lwolevel enLry 1he problem could arlse lf Lhe
capaclLles of mlnlmumefflclenLscale planLs ln Lhe prlmary and secondary markeLs dlffer
slgnlflcanLly lor example lf Lhe capaclLy of a mlnlmumefflclenLscale planL ln Lhe secondary
markeL were slgnlflcanLly greaLer Lhan Lhe needs of a mlnlmumefflclenLscale planL ln Lhe
prlmary markeL enLranLs would have Lo choose beLween lnefflclenL operaLlon aL Lhe
secondary level (because of operaLlng an efflclenL planL aL an lnefflclenL ouLpuL or because of
operaLlng an lnefflclenLly small planL) or a larger Lhan necessary scale aL Lhe prlmary level
LlLher of Lhese effecLs could cause a slgnlflcanL lncrease ln Lhe operaLlng cosLs of Lhe enLerlng
flrm
(33)

413 Structure and erformance of the r|mary Market
8arrlers Lo enLry are unllkely Lo affecL performance lf Lhe sLrucLure of Lhe prlmary markeL ls
oLherwlse noL conduclve Lo monopollzaLlon or colluslon
(34)
1he ueparLmenL ls unllkely Lo
challenge a merger on Lhls ground unless overall concenLraLlon of Lhe prlmary markeL ls above
1800 PPl (a somewhaL lower concenLraLlon wlll sufflce lf one or more of Lhe facLors dlscussed
ln SecLlon 34 lndlcaLe LhaL effecLlve colluslon ls parLlcularly llkely) Above LhaL Lhreshold Lhe
ueparLmenL ls lncreaslngly llkely Lo challenge a merger LhaL meeLs Lhe oLher crlLerla seL forLh
above as Lhe concenLraLlon lncreases
4 Iac|||tat|ng Co||us|on 1hrough Vert|ca| Mergers
41 Vert|ca| Integrat|on to the keta|| Leve|
A hlgh level of verLlcal lnLegraLlon by upsLream flrms lnLo Lhe assoclaLed reLall markeL may
faclllLaLe colluslon ln Lhe upsLream markeL by maklng lL easler Lo monlLor prlce 8eLall prlces
are generally more vlslble Lhan prlces ln upsLream markeLs and verLlcal mergers may lncrease
Lhe level of verLlcal lnLegraLlon Lo Lhe polnL aL whlch Lhe monlLorlng effecL becomes slgnlflcanL
Adverse compeLlLlve consequences are unllkely unless Lhe upsLream markeL ls generally
conduclve Lo colluslon and a large percenLage of Lhe producLs produced Lhere are sold Lhrough
verLlcally lnLegraLed reLall ouLleLs
1he ueparLmenL ls unllkely Lo challenge a merger on Lhls ground unless 1) overall
concenLraLlon of Lhe upsLream markeL ls above 1800 PPl (a somewhaL lower concenLraLlon
wlll sufflce lf one or more of Lhe facLors dlscussed ln SecLlon 34 lndlcaLe LhaL effecLlve
colluslon ls parLlcularly llkely) and 2) a large percenLage of Lhe upsLream producL would be
sold Lhrough verLlcallylnLegraLed reLall ouLleLs afLer Lhe merger Where Lhe sLaLed Lhresholds
are meL or exceeded Lhe ueparLmenLs declslon wheLher Lo challenge a merger on Lhls ground
wlll depend upon an lndlvldual evaluaLlon of lLs llkely compeLlLlve effecL
4 L||m|nat|on of a D|srupt|ve 8uyer
1he ellmlnaLlon by verLlcal merger of a parLlcularly dlsrupLlve buyer ln a downsLream markeL
may faclllLaLe colluslon ln Lhe upsLream markeL lf upsLream flrms vlew sales Lo a parLlcular
buyer as sufflclenLly lmporLanL Lhey may devlaLe from Lhe Lerms of a colluslve agreemenL ln
an efforL Lo secure LhaL buslness Lhereby dlsrupLlng Lhe operaLlon of Lhe agreemenL 1he
merger of such a buyer wlLh an upsLream flrm may ellmlnaLe LhaL rlvalry maklng lL easler for
Lhe upsLream flrms Lo collude effecLlvely Adverse compeLlLlve consequences are unllkely
unless Lhe upsLream markeL ls generally conduclve Lo colluslon and Lhe dlsrupLlve flrm ls
slgnlflcanLly more aLLracLlve Lo sellers Lhan Lhe oLher flrms ln lLs markeL
1he ueparLmenL ls unllkely Lo challenge a merger on Lhls ground unless 1) overall
concenLraLlon of Lhe upsLream markeL ls 1800 PPl or above (a somewhaL lower concenLraLlon
wlll sufflce lf one or more of Lhe facLors dlscussed ln SecLlon 34 lndlcaLe LhaL effecLlve
colluslon ls parLlcularly llkely) and 2) Lhe allegedly dlsrupLlve flrm dlffers subsLanLlally ln
volume of purchases or oLher relevanL characLerlsLlcs from Lhe oLher flrms ln lLs markeL
Where Lhe sLaLed Lhresholds are meL or exceeded Lhe ueparLmenLs declslon wheLher Lo
challenge a merger on Lhls ground wlll depend upon an lndlvldual evaluaLlon of lLs llkely
compeLlLlve effecL
43 Lvas|on of kate kegu|at|on
nonhorlzonLal mergers may be used by monopoly publlc uLlllLles sub[ecL Lo raLe regulaLlon as
a Lool for clrcumvenLlng LhaL regulaLlon 1he clearesL example ls Lhe acqulslLlon by a regulaLed
uLlllLy of a suppller of lLs flxed or varlable lnpuLs AfLer Lhe merger Lhe uLlllLy would be selllng
Lo lLself and mlghL be able arblLrarlly Lo lnflaLe Lhe prlces of lnLernal LransacLlons 8egulaLors
may have greaL dlfflculLy ln pollclng Lhese pracLlces parLlcularly lf Lhere ls no lndependenL
markeL for Lhe producL (or servlce) purchased from Lhe afflllaLe
(33)
As a resulL lnflaLed prlces
could be passed along Lo consumers as leglLlmaLe cosLs ln exLreme cases Lhe regulaLed flrm
may effecLlvely preempL Lhe ad[acenL markeL perhaps for Lhe purpose of suppresslng
observable markeL LransacLlons and may dlsLorL resource allocaLlon ln LhaL ad[acenL markeL as
well as ln Lhe regulaLed markeL ln such cases however Lhe ueparLmenL recognlzes LhaL
genulne economles of lnLegraLlon may be lnvolved 1he ueparLmenL wlll conslder challenglng
mergers LhaL creaLe subsLanLlal opporLunlLles for such abuses
(36)

44 Lff|c|enc|es
As ln Lhe case of horlzonLal mergers Lhe ueparLmenL wlll conslder expecLed efflclencles ln
deLermlnlng wheLher Lo challenge a verLlcal merger See SecLlon 33 (Lfflclencles) An exLenslve
paLLern of verLlcal lnLegraLlon may consLlLuLe evldence LhaL subsLanLlal economles are
afforded by verLlcal lnLegraLlon 1herefore Lhe ueparLmenL wlll glve relaLlvely more welghL Lo
expecLed efflclencles ln deLermlnlng wheLher Lo challenge a verLlcal merger Lhan ln
deLermlnlng wheLher Lo challenge a horlzonLal merger
DLILNSLS
S1 Ia|||ng I|rm
1he falllng flrm defense ls a longesLabllshed buL amblguous docLrlne under whlch an
anLlcompeLlLlve merger may be allowed because one of Lhe merglng flrms ls falllng 8ecause
Lhe defense can lmmunlze slgnlflcanLly anLlcompeLlLlve mergers Lhe ueparLmenL wlll consLrue
lLs elemenL sLrlcLly
1he ueparLmenL ls unllkely Lo challenge an anLlcompeLlLlve merger ln whlch one of Lhe
merglng flrms ls allegedly falllng when 1) Lhe allegedly falllng flrm probably would be unable
Lo meeL lLs flnanclal obllgaLlons ln Lhe near fuLure 2) lL probably would noL be able Lo
reorganlze successfully under ChapLer 11 of Lhe 8ankrupLcy AcL
(37)
and 3) lL has made
alLernaLlve offers of acqulslLlon of Lhe falllng flrm
(38)

LhaL would keep lL ln Lhe markeL and pose a less severe danger Lo compeLlLlon Lhan does Lhe
proposed merger
S Ia|||ng D|v|s|on
A slmllar argumenL can be made for falllng dlvlslons as for falllng flrms A mulLldlvlslonal
flrm may declde Lo leave a parLlcular llne of buslness by selllng or llquldaLlng a dlvlslon lf Lhe
speclflc condlLlons seL ouL below are meL Lhe ueparLmenL wlll conslder Lhe fallure of Lhe
dlvlslon as an lmporLanL facLor affecLlng Lhe llkely compeLlLlve effecL of Lhe merger llrsL Lhe
proponenLs of a merger lnvolvlng a falllng dlvlslon musL esLabllsh noL based solely on
managemenL plans whlch could be prepared slmply for Lhe purpose of creaLlng evldence of
lnLenL LhaL Lhe dlvlslon would be llquldaLed ln Lhe near fuLure lf noL sold Second Lhe
proponenLs of Lhe merger also musL demonsLraLe compllance wlLh Lhe compeLlLlvely
preferable purchaser requlremenL of Lhe falllng flrm defense


ICC1NC1LS
1 13 uSC 18 (1982) Mergers sub[ecL Lo secLlon 7 are prohlblLed lf Lhelr effecL may be
subsLanLlally Lo lessen compeLlLlon or Lo Lend Lo creaLe a monopoly
2 13 uSC 1 (1982) Mergers sub[ecL Lo secLlon 1 are prohlblLed lf Lhey consLlLuLe a
conLracL comblnaLlon or consplracy ln resLralnL of Lrade
3 1hey updaLe Lhe Culdellnes lssued by Lhe ueparLmenL ln 1982 1he ueparLmenL may from
Llme Lo Llme revlse Lhe Merger Culdellnes as necessary Lo reflecL any slgnlflcanL changes ln
enforcemenL pollcy or Lo clarlfy aspecLs of exlsLlng pollcy
4 arLles seeklng more speclflc advance guldance concernlng Lhe ueparLmenLs enforcemenL
lnLenLlons wlLh respecL Lo any parLlcular merger should conslder uslng Lhe 8uslness 8evlew
rocedure 28 Cl8
3 AlLhough dlscussed separaLely producL markeL deflnlLlon and geographlc markeL deflnlLlon
are lnLerrelaLed ln parLlcular Lhe exLenL Lo whlch buyers of a parLlcular producL would shlfL Lo
oLher producLs ln Lhe evenL of a small buL slgnlflcanL and nonLranslLory lncrease ln prlce
musL be evaluaLed ln Lhe conLexL of Lhe relevanL geographlc markeL
6 lor example ln a merger beLween reLallers Lhe relevanL prlce would be Lhe reLall prlce of a
producL Lo consumers ln Lhe case of a merger among oll plpellnes Lhe relevanL prlce would be
Lhe LarlffLhe prlce of Lhe LransporLaLlon servlce
7 lor example a larger lncrease may be approprlaLe lf Lhe prlce Lo be lncreased ls a Larlff or
commlsslon LhaL consLlLuLes a small fracLlon of Lhe prlce of Lhe producL belng LransporLed or
sold
8 rlce dlscrlmlnaLlon requlres LhaL sellers be able Lo ldenLlfy Lhose buyers and LhaL oLher
buyers be unable proflLably Lo purchase and resell Lo Lhem
9 under oLher analyLlcal approaches producLlon subsLlLuLlon someLlmes has been reflecLed ln
Lhe descrlpLlon of Lhe producL markeL lor example Lhe producL markeL for sLamped meLal
producLs such as auLomoblle hub caps mlghL be descrlbed as llghL meLal sLamplng a
producLlon process raLher Lhan a producL 1he ueparLmenL belleves LhaL Lhe approach
descrlbed ln Lhe LexL provldes a more clearly focused meLhod of lncorporaLlng Lhls facLor ln
merger analysls lf producLlon subsLlLuLlon among a group of producLs ls nearly unlversal
among Lhe flrms selllng one or more ofLhose producLs however Lhe ueparLmenL may use an
aggregaLe descrlpLlon of Lhose markeLs as a maLLer of convenlence
10 1he amounL of sales or capaclLy Lo be lncluded ln Lhe markeL ls a separaLe quesLlon
dlscussed ln SecLlon 24 below
11 Ceographlc prlce dlscrlmlnaLlon agalnsL a group of buyers ls more llkely when oLher buyers
cannoL easlly purchase and resell Lhe relevanL producL Lo Lhem Such arblLrage ls parLlcularly
dlfflculL where Lhe producL ls sold on a dellvered basls and where LransporLaLlon cosLs are a
slgnlflcanL percenLage of Lhe flnal cosL
12 lf exchange raLes flucLuaLe slgnlflcanLly maklng comparable dollar calculaLlons for dlfferenL
flrms dlfflculL Lhen Lhe volume of unlL sales may be a beLLer measure of markeL share Lhan
dollar sales and may be used lnsLead
13 MarkeLs can range from aLomlsLlc where very large numbers of flrms LhaL are small
relaLlve Lo Lhe overall slze of Lhe markeL compeLe wlLh one anoLher Lo monopollsLlc where
one flrm conLrols Lhe enLlre markeL lar more common and more dlfflculL analyLlcally ls Lhe
large mlddle range of lnsLances where a relaLlvely small number of flrms accounL for mosL of
Lhe sales ln Lhe markeL
14 lor example a markeL conslsLlng of four flrms wlLh markeL shares of 30 percenL 30
percenL 20 percenL and 20 percenL has an PPl of 2600 (30
2
+ 30
2
+ 20
2
+ 20
2
2600) 1he
PPl ranges from 10000 (ln Lhe case of a pure monopoly) Lo a number approachlng zero (ln Lhe
case of an aLomlsLlc markeL) AlLhough lL ls deslrable Lo lnclude all flrms ln Lhe calculaLlon lack
of lnformaLlon abouL small frlnge flrms ls noL crlLlcal because such flrms do noL affecL Lhe PPl
slgnlflcanLly
13 1he lncrease ln concenLraLlon as measured by Lhe PPl can be calculaLed lndependenLly of
Lhe overall markeL concenLraLlon by doubllng Lhe producL of Lhe markeL shares of Lhe merglng
flrms lor example Lhe merger of flrms wlLh shares of percenL and 10 percenL of Lhe markeL
would lncrease Lhe PPl by 100 (3 x 10 x 2 100) 1he explanaLlon for Lhls Lechnlque ls as
follows ln calculaLlng Lhe PPl before Lhe merger Lhe markeL shares of Lhe merglng flrms are
squared lndlvldually (a)
2
+ (b)
2
AfLer Lhe merger Lhe sum of Lhose shares would be squared
(a + b)
2
whlch equals a
2
+ 2ab + b
2
1he lncrease ln Lhe PPl Lherefore ls represenLed by 2ab
16 Mergers produclng lncreases ln concenLraLlon close Lo Lhe 100 polnL Lhreshold lnclude
Lhose beLween flrms wlLh markeL shares of 23 percenL and 2 percenL 16 percenL and 3
percenL 12 percenL and 4 percenL 10 percenL and percenL 8 percenL and 6 percenL and 7
percenL and 7 percenL
17 Mergers produclng lncreases ln concenLraLlon close Lo Lhe 30 polnL Lhreshold lnclude Lhose
beLween flrms wlLh markeL share of 12 percenL and 2 percenL 8 percenL and 3 percenL 6
percenL and 4 percenL and percenL and percenL
18 1hls facLor ls dlsLlngulshed from Lhe falllng company docLrlne whlch ls an afflrmaLlve
defense Lo an oLherwlse unlawful merger and whlch as noLed ln SecLlon 31 Lhe ueparLmenL
wlll consLrue sLrlcLly
19 lor example ln Lhe exLreme slLuaLlon where Lhere ls an effecLlve Lrade resLralnL LhaL places
a flxed or percenLage llmlLaLlon on Lhe quanLlLy of goods LhaL can be lmporLed lnLo Lhe unlLed
SLaLes from all or almosL all forelgn sources markeL shares of forelgn sources would usually be
accorded llLLle lf any welghL
20 LnLry may occur as flrms ouLslde Lhe markeL enLer for Lhe flrsL Llme or as frlnge flrms
currenLly ln Lhe markeL greaLly expand Lhelr currenL capaclLy
21 ln general enLry ls more llkely Lo occur when Lhe addlLlonal asseLs necessary Lo produce
Lhe relevanL producL are shorLllved or wldely used ouLslde Lhe parLlcular appllcaLlon LnLry ls
generally faclllLaLed by Lhe growLh of Lhe markeL and hlndered by lLs sLagnaLlon or decllne
LnLry also ls hlndered by Lhe need for scarce speclal skllls or resources or Lhe need Lo achleve
a subsLanLlal markeL share ln order Lo reallze lmporLanL economles of scale See also SecLlon
4212 (lncreased ulfflculLy of SlmulLaneous LnLry Lo 8oLh MarkeLs)
22 AlLhough Lhls Lype of supply response may Lake longer Lo maLerlallze Lhan Lhose
consldered under SecLlon 221 lLs prospecL may have a greaLer deLerrenL effecL on Lhe
exerclse of markeL power by presenL sellers Where new enLry lnvolves Lhe dedlcaLlon of long
llved asseLs Lo a markeL Lhe resulLlng capaclLy and lLs adverse effecLs on proflLablllLy wlll be
presenL ln Lhe markeL unLll Lhose asseLs are economlcally depreclaLed
23 A slmllar slLuaLlon may exlsL where Lhere ls rapld Lechnologlcal change or where supply
arrangemenLs conslsL of many compllcaLed Lerms ln addlLlon Lo prlce
24 1hls concluslon would noL apply however where Lhe slgnlflcance of heLerogenelLy ls
subsLanLlally reduced Lhrough deLalled speclflcaLlons LhaL are provlded by Lhe buyer and LhaL
form Lhe basls for all flrms blds
23 under LradlLlonal usage such a merger could be characLerlzed as elLher verLlcal or
conglomeraLe buL Lhe label adds noLhlng Lo Lhe analysls
26 1he Lerms acqulred and acqulrlng refer Lo Lhe relaLlonshlp of Lhe flrmsLo Lhe markeL of
lnLeresL noL Lo Lhe way Lhe parLlcular LransacLlon ls formally sLrucLured
27 When colluslon ls only LaclL Lhe problem of arrlvlng aL and enforclng Lhe correcL llmlL prlce
ls llkely Lo be parLlcularly dlfflculL
28 lor example Lhe flrm already may have moved beyond Lhe sLage of conslderaLlon and
have made slgnlflcanL lnvesLmenLs demonsLraLlng an acLual declslon Lo enLer
29 AlLhough a slmllar effecL ls posslble wlLh Lhe acqulslLlon of larger flrms Lhere ls an
lncreased danger LhaL Lhe acqulrlng flrm wlll choose Lo acqulesce ln monopollzaLlon or
colluslon because of Lhe enhanced proflLs LhaL would resulL from lLs own dlsappearance from
Lhe edge of Lhe markeL
30 1hls compeLlLlve problem could resulL from elLher upsLream or downsLream lnLegraLlon
and could affecL compeLlLlon ln elLher Lhe upsLream markeL or Lhe downsLream markeL ln Lhe
LexL Lhe Lerm prlmary markeL refers Lo Lhe markeL ln whlch Lhe compeLlLlve concerns are
belng consldered and Lhe Lerm secondary markeL refers Lo Lhe ad[acenL markeL
31 Cwnershlp lnLegraLlon does noL necessarlly mandaLe Lwolevel enLry by new enLranLs Lo
Lhe prlmary markeL Such enLry ls mosL llkely Lo be necessary where Lhe prlmary and
secondary markeLs are compleLely lnLegraLed by ownershlp and each flrm ln Lhe prlmary
markeL uses all of Lhe capaclLy of lLs assoclaLed flrm ln Lhe secondary markeL ln many cases of
ownershlp lnLegraLlon however Lhe funcLlonal flL beLween verLlcally lnLegraLed flrms ls noL
perfecL and an ouLslde markeL exlsLs for Lhe sales (purchases) of Lhe flrms ln Lhe secondary
markeL lf LhaL markeL ls sufflclenLly large and dlverse new enLranLs Lo Lhe prlmary markeL
may be able Lo parLlclpaLe wlLhouL slmulLaneous enLry Lo Lhe secondary markeL ln conslderlng
Lhe adequacy of Lhls alLernaLlve Lhe ueparLmenL wlll conslder Lhe llkellhood of predaLory prlce
or supply squeezes by Lhe lnLegraLed flrms agalnsL Lhelr unlnLegraLed rlvals
32 LnLry lnLo Lhe secondary markeL may be greaLly faclllLaLed ln LhaL an assured suppller
(cusLomer) ls provlded by Lhe prlmary markeL enLry
33 lL ls lmporLanL Lo noLe however LhaL Lhls problem would noL exlsL lf a slgnlflcanL ouLslde
markeL exlsLs aL Lhe secondary level ln LhaL case enLranLs could enLer wlLh Lhe approprlaLely
scaled planLs aL boLh levels and sell or buy ln Lhe markeL as necessary
34 lor example a markeL wlLh 100 flrms of equal slze would perform compeLlLlvely desplLe a
slgnlflcanL lncrease ln enLry barrlers
33 A less severe buL neverLheless serlous problem can arlse when a regulaLed uLlllLy acqulres
a flrm LhaL ls noL verLlcally relaLed 1he use of common faclllLles and managers may creaLe an
lnsoluble cosL allocaLlon problem and provlde Lhe opporLunlLy Lo charge uLlllLy cusLomers for
nonuLlllLy cosLs consequenLly dlsLorLlng resource allocaLlon ln Lhe ad[acenL as well as Lhe
regulaLed markeL
36 Where a regulaLory agency has Lhe responslblllLy for approvlng such mergers Lhe
ueparLmenL may express lLs concerns Lo LhaL agency ln lLs role as compeLlLlon advocaLe
37 11 uSC 11011174 (1982)
38 1he facL LhaL an offer ls less Lhan Lhe proposed LransacLlon does noL make lL unreasonable
http]]www[ust|cegov]atr]hmerger]1149htm