Abstract
This article offers a practical guide to analyzing vertical mergers using the general approach to input foreclosure and raising rivals’ costs that is described in the 2020 Vertical Merger Guidelines that were issued by the U.S. Department of Justice and the Federal Trade Commission. The step-by-step analysis described here draws lessons from how that theory of harm played out in the lone vertical merger case that has been litigated by the antitrust agencies in recent decades: the 2018 challenge by the Department of Justice to the merger between AT&T and Time Warner. I testified in court as the DOJ’s economic expert in that case. I explain here how to quantify the increase in rivals’ costs and the elimination of double marginalization that are caused by a vertical merger and how to evaluate their net effect on downstream customers. I also explain how this economic analysis fits into the three-step burden-shifting approach that the courts apply to mergers under Section 7 of the Clayton Act. Based on my experience in the AT&T/Time Warner case, I identify a number of shortcomings of the 2020 Vertical Merger Guidelines.
Highlights
The 2020 Vertical Merger Guidelines (“2020 Guidelines” or VMGs) are a major improvement over the 1984 Non-Horizontal Merger Guidelines that they replaced, which had become a “dead letter.” The topic that forms the centerpiece of the 2020 Guidelines—“Foreclosure and Raising Rivals’ Costs” (Section 4a), which is the most common theory of harm that has been explored by the U.S Department ofThis article may be found at http://www.faculty.haas.berkeley.edu/shapiro/verticalmergers.pdf.1 3 Vol.:(0123456789) C
The step-by-step analysis that is described here draws lessons from how that theory of harm played out in the lone vertical merger case that has been litigated by the antitrust agencies in recent decades: the DOJ’s unsuccessful challenge to the merger between AT&T and Time Warner
The 2020 VMGs state the following about quantifying elimination of double marginalization” (EDM): While it is incumbent upon the merging firms to provide substantiation for claims that they will benefit from the elimination of double marginalization, the Agencies may independently attempt to quantify its effect based on all available evidence, including the evidence they develop to assess the potential for foreclosure or raising rivals’ costs
Summary
The 2020 Vertical Merger Guidelines (“2020 Guidelines” or VMGs) are a major improvement over the 1984 Non-Horizontal Merger Guidelines that they replaced, which had become a “dead letter.”. The topic that forms the centerpiece of the 2020 Guidelines—“Foreclosure and Raising Rivals’ Costs” (Section 4a), which is the most common theory of harm that has been explored by the U.S Department of. This article may be found at http://www.faculty.haas.berkeley.edu/shapiro/verticalmergers.pdf
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