This element would not be satisfied, and in turn a merger would rarely warrant close scrutiny
for its potential to lead to foreclosure or raising rivals’ costs, if rivals could readily switch
purchases to alternatives to the related product, including self-supply, without any meaningful
effect on the price, quality, or availability of products or services in the relevant market.
The Agencies’ review of the merged firm’s rivals’ ability to switch to alternatives to the related
product may include, but is not limited to, the types of evidence the Agencies use to evaluate
customer switching when implementing the hypothetical monopolist test, listed in Section
4.1.3 of the Horizontal Merger Guidelines.
(2) Incentive: The merged firm, as a result of the merger, would likely find it profitable to foreclose
rivals, or offer inferior terms for the related product, because it benefits significantly in the
relevant market when rivals lose sales or alter their behavior in response to the foreclosure or
to the inferior terms.
This element would not be satisfied, and in turn a merger would rarely warrant close scrutiny
for its potential to induce foreclosure or raise rivals’ costs, if the merged firm would not benefit
from a reduction in actual or potential competition with users of the related product in the
relevant market.
The Agencies’ assessment of the effect of a vertical merger on the incentive to foreclose rivals
or raise their costs by changing the terms of the related product will be fact-specific. For
example, in the case of foreclosure, the Agencies generally consider whether the merged firm’s
gains in the relevant market would likely outweigh any losses from reduced sales of the related
product.
Mergers for which these conditions are met potentially raise significant competitive concerns and
often warrant scrutiny.
For mergers that warrant scrutiny, the Agencies will determine whether, based on an evaluation of
the facts and circumstances of the relevant market, the merger may substantially lessen
competition. This evaluation will generally include an assessment of the likely net effect on
competition in the relevant market of all changes to the merged firm’s unilateral incentives. The
merged firm may foreclose its rivals or raise their costs by changing the terms offered for the
related product, but a vertical merger can also change other incentives. The elimination of double
marginalization, for example, can confer on the merged firm an incentive to set lower downstream
prices. The price that a downstream firm pays for an input supplied by an independent upstream
firm may include a markup over the upstream firm’s marginal cost. If a downstream and an
upstream firm merge, and the merged firm supplies itself with its own related product, it will have
access to the input at cost. (See Section 6.) The likely merger-induced increase or decrease in
downstream prices would be determined by considering the impact of both these effects, as well
as any other competitive effects.
To the extent practicable and appropriate, the Agencies will use the same set of facts and
assumptions to evaluate both the potential harm from a vertical merger and the potential benefits
of the elimination of double marginalization, and will focus on evaluating conduct that would be
most profitable for the merged firm as a whole.
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