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Vertical merger developments

Competition Section makes recommendations on U.S. vertical mergers guidelines.

Financial centre, Chicago

The integration of the North American economy is such that regulations affecting companies in one country are likely to affect parents or subsidiaries in another. That’s why the CBA’s Competition Law Section was happy to review draft Vertical Merger Guidelines published by the U.S. Department of Justice Antitrust Division and the Federal Trade Commission.

The Section makes eight recommendations in its submission to the U.S. agencies, dealing with everything from the definition of “related products” to the relative merits of behavioural or structural remedies to vertical concerns.

The Section notes that where the draft guidelines say the agencies will “specify one or more related products,” they do not define what degree of relatedness will be required, or how it will be determined, nor do they elaborate on how they will determine whether a linkage between a relevant market and a related product is competitively significant. It recommends that the guidelines clarify the level of detail required for evaluating a related product.

The guidelines set out a 20 per cent safe harbour threshold - which is significantly lower than the screens for vertical mergers used around the world – and then undercut it by suggesting that the safe harbour threshold might not be safe at all depending on other competitive factors which might be considered.

The guidelines also state that the agencies are “unlikely to challenge a vertical merger” below the 20 per cent threshold, implying that those mergers could still face review even though a challenge might be unlikely.

“We recommend that the vertical merger guidelines (a) delineate the circumstances where the agencies are likely to deviate from the 20 per cent screen; and (b) indicate that the agencies are “unlikely to challenge or extensively investigate” a merger under the 20 per cent threshold.

Other recommendations include that the guidelines:

  • Clarify that both the incentive and ability to engage in exclusionary conduct are required to raise competition concerns
  • Add discussion and examples of partial customer foreclosure
  • Recognize the difficulties that arise in attempting to eliminate double marginalization and other efficiencies through contracting as an alternative to vertical integration
  • Specify the types of efficiencies that can be achieved through vertical mergers
  • Offer guidance on situations where the agencies would consider behavioural remedies as opposed to structural remedies