US Horizontal merger Guidelines
legal or regulatory requirements; and
the influence of downstream competition faced by customers in their output markets.
When the necessary data are available, the Agencies also may consider a “critical loss analysis” to
assess the extent to which it corroborates inferences drawn from the evidence noted above. Critical
loss analysis asks whether imposing at least a SSNIP on one or more products in a candidate market
would raise or lower the hypothetical monopolist’s profits. While this “breakeven” analysis differs
from the profit-maximizing analysis called for by the hypothetical monopolist test in Section 4.1.1,
merging parties sometimes present this type of analysis to the Agencies. A price increase raises
profits on sales made at the higher price, but this will be offset to the extent customers substitute
away from products in the candidate market. Critical loss analysis compares the magnitude of these
two offsetting effects resulting from the price increase. The “critical loss” is defined as the number of
lost unit sales that would leave profits unchanged. The “predicted loss” is defined as the number of
unit sales that the hypothetical monopolist is predicted to lose due to the price increase. The price
increase raises the hypothetical monopolist’s profits if the predicted loss is less than the critical loss.
The Agencies consider all of the evidence of customer substitution noted above in assessing the
predicted loss. The Agencies require that estimates of the predicted loss be consistent with that
evidence, including the pre-merger margins of products in the candidate market used to calculate the
critical loss. Unless the firms are engaging in coordinated interaction (see Section 7), high pre-merger
margins normally indicate that each firm’s product individually faces demand that is not highly
sensitive to price. Higher pre-merger margins thus indicate a smaller predicted loss as well as a
smaller critical loss. The higher the pre-merger margin, the smaller the recapture percentage
necessary for the candidate market to satisfy the hypothetical monopolist test.
Even when the evidence necessary to perform the hypothetical monopolist test quantitatively is not
available, the conceptual framework of the test provides a useful methodological tool for gathering
and analyzing evidence pertinent to customer substitution and to market definition. The Agencies
follow the hypothetical monopolist test to the extent possible given the available evidence, bearing in
mind that the ultimate goal of market definition is to help determine whether the merger may
substantially lessen competition.
4.1.4 Product Market Definition with Targeted Customers
If a hypothetical monopolist could profitably target a subset of customers for price increases, the
Agencies may identify relevant markets defined around those targeted customers, to whom a
hypothetical monopolist would profitably and separately impose at least a SSNIP. Markets to serve
targeted customers are also known as price discrimination markets. In practice, the Agencies identify
price discrimination markets only where they believe there is a realistic prospect of an adverse
competitive effect on a group of targeted customers.
Example 11: Glass containers have many uses. In response to a price increase for glass containers, some users
would substitute substantially to plastic or metal containers, but baby food manufacturers would not. If a
6 While margins are important for implementing the hypothetical monopolist test, high margins are not in themselves
of antitrust concern. 12
hypothetical monopolist could price separately and limit arbitrage, baby food manufacturers would be vulnerable
to a targeted increase in the price of glass containers. The Agencies could define a distinct market for glass
containers used to package baby food.
The Agencies also often consider markets for targeted customers when prices are individually
negotiated and suppliers have information about customers that would allow a hypothetical
monopolist to identify customers that are likely to pay a higher price for the relevant product. If
prices are negotiated individually with customers, the hypothetical monopolist test may suggest
relevant markets that are as narrow as individual customers (see also Section 6.2 on bargaining and
auctions). Nonetheless, the Agencies often define markets for groups of targeted customers, i.e., by
type of customer, rather than by individual customer. By so doing, the Agencies are able to rely on
aggregated market shares that can be more helpful in predicting the competitive effects of the merger.
4.2 Geographic Market Definition
The arena of competition affected by the merger may be geographically bounded if geography limits
some customers’ willingness or ability to substitute to some products, or some suppliers’ willingness
or ability to serve some customers. Both supplier and customer locations can affect this. The
Agencies apply the principles of market definition described here and in Section 4.1 to define a
relevant market with a geographic dimension as well as a product dimension.
The scope of geographic markets often depends on transportation costs. Other factors such as
language, regulation, tariff and non-tariff trade barriers, custom and familiarity, reputation, and
service availability may impede long-distance or international transactions. The competitive
significance of foreign firms may be assessed at various exchange rates, especially if exchange rates
have fluctuated in the recent past.
In the absence of price discrimination based on customer location, the Agencies normally define
geographic markets based on the locations of suppliers, as explained in subsection 4.2.1. In other
cases, notably if price discrimination based on customer location is feasible as is often the case when
delivered pricing is commonly used in the industry, the Agencies may define geographic markets
based on the locations of customers, as explained in subsection 4.2.2.
4.2.1 Geographic Markets Based on the Locations of Suppliers
Geographic markets based on the locations of suppliers encompass the region from which sales are
made. Geographic markets of this type often apply when customers receive goods or services at
suppliers’ locations. Competitors in the market are firms with relevant production, sales, or service
facilities in that region. Some customers who buy from these firms may be located outside the
boundaries of the geographic market.
The hypothetical monopolist test requires that a hypothetical profit-maximizing firm that was the
only present or future producer of the relevant product(s) located in the region would impose at least
a SSNIP from at least one location, including at least one location of one of the merging firms. In this
exercise the terms of sale for all products produced elsewhere are held constant. A single firm may
operate in a number of different geographic markets, even for a single product.
Example 12: The merging parties both have manufacturing plants in City X. The relevant product is expensive to
transport and suppliers price their products for pickup at their locations. Rival plants are some distance away in
City Y. A hypothetical monopolist controlling all plants in City X could profitably impose a SSNIP at these
plants. Competition from more distant plants would not defeat the price increase because supplies coming from
more distant plants require expensive transportation. The relevant geographic market is defined around the plants
in City X.
When the geographic market is defined based on supplier locations, sales made by suppliers located
in the geographic market are counted, regardless of the location of the customer making the purchase.
In considering likely reactions of customers to price increases for the relevant product(s) imposed in a
candidate geographic market, the Agencies consider any reasonably available and reliable evidence,
how customers have shifted purchases in the past between different geographic locations in
response to relative changes in price or other terms and conditions;
the cost and difficulty of transporting the product (or the cost and difficulty of a customer
traveling to a seller’s location), in relation to its price;
whether suppliers need a presence near customers to provide service or support;
evidence on whether sellers base business decisions on the prospect of customers switching
between geographic locations in response to relative changes in price or other competitive
the costs and delays of switching from suppliers in the candidate geographic market to
suppliers outside the candidate geographic market; and
the influence of downstream competition faced by customers in their output markets.
4.2.2 Geographic Markets Based on the Locations of Customers
When the hypothetical monopolist could discriminate based on customer location, the Agencies may
7 Geographic markets of this
define geographic markets based on the locations of targeted customers.
type often apply when suppliers deliver their products or services to customers’ locations.
Geographic markets of this type encompass the region into which sales are made. Competitors in the
market are firms that sell to customers in the specified region. Some suppliers that sell into the
relevant market may be located outside the boundaries of the geographic market.
The hypothetical monopolist test requires that a hypothetical profit-maximizing firm that was the
only present or future seller of the relevant product(s) to customers in the region would impose at
least a SSNIP on some customers in that region. A region forms a relevant geographic market if this
price increase would not be defeated by substitution away from the relevant product or by arbitrage,
7 For customers operating in multiple locations, only those customer locations within the targeted zone are included in
the market. 14
e.g., customers in the region travelling outside it to purchase the relevant product. In this exercise, the
terms of sale for products sold to all customers outside the region are held constant.
Example 13: Customers require local sales and support. Suppliers have sales and service operations in many
geographic areas and can discriminate based on customer location. The geographic market can be defined around
the locations of customers.
Example 14: Each merging firm has a single manufacturing plant and delivers the relevant product to customers
in City X and in City Y. The relevant product is expensive to transport. The merging firms’ plants are by far the
closest to City X, but no closer to City Y than are numerous rival plants. This fact pattern suggests that
customers in City X may be harmed by the merger even if customers in City Y are not. For that reason, the
Agencies consider a relevant geographic market defined around customers in City X. Such a market could be
defined even if the region around the merging firms’ plants would not be a relevant geographic market defined
based on the location of sellers because a hypothetical monopolist controlling all plants in that region would find
a SSNIP imposed on all of its customers unprofitable due to the loss of sales to customers in City Y.
When the geographic market is defined based on customer locations, sales made to those customers
are counted, regardless of the location of the supplier making those sales.
Example 15: Customers in the United States must use products approved by U.S. regulators. Foreign customers
use products not approved by U.S. regulators. The relevant product market consists of products approved by U.S.
regulators. The geographic market is defined around U.S. customers. Any sales made to U.S. customers by
foreign suppliers are included in the market, and those foreign suppliers are participants in the U.S. market even
though located outside it.
5. Market Participants, Market Shares, and Market Concentration
The Agencies normally consider measures of market shares and market concentration as part of their
evaluation of competitive effects. The Agencies evaluate market shares and concentration in
conjunction with other reasonably available and reliable evidence for the ultimate purpose of
determining whether a merger may substantially lessen competition.
Market shares can directly influence firms’ competitive incentives. For example, if a price reduction
to gain new customers would also apply to a firm’s existing customers, a firm with a large market
share may be more reluctant to implement a price reduction than one with a small share. Likewise, a
firm with a large market share may not feel pressure to reduce price even if a smaller rival does.
Market shares also can reflect firms’ capabilities. For example, a firm with a large market share may
be able to expand output rapidly by a larger absolute amount than can a small firm. Similarly, a large
market share tends to indicate low costs, an attractive product, or both.
5.1 Market Participants
All firms that currently earn revenues in the relevant market are considered market participants.
Vertically integrated firms are also included to the extent that their inclusion accurately reflects their
competitive significance. Firms not currently earning revenues in the relevant market, but that have
committed to entering the market in the near future, are also considered market participants.
Firms that are not current producers in a relevant market, but that would very likely provide rapid
supply responses with direct competitive impact in the event of a SSNIP, without incurring
significant sunk costs, are also considered market participants. These firms are termed “rapid
entrants.” Sunk costs are entry or exit costs that cannot be recovered outside the relevant market.
Entry that would take place more slowly in response to adverse competitive effects, or that requires
firms to incur significant sunk costs, is considered in Section 9.
Firms that produce the relevant product but do not sell it in the relevant geographic market may be
rapid entrants. Other things equal, such firms are most likely to be rapid entrants if they are close to
the geographic market.
Example 16: Farm A grows tomatoes halfway between Cities X and Y. Currently, it ships its tomatoes to City X
because prices there are two percent higher. Previously it has varied the destination of its shipments in response
to small price variations. Farm A would likely be a rapid entrant participant in a market for tomatoes in City Y.
Example 17: Firm B has bid multiple times to supply milk to School District S, and actually supplies milk to
schools in some adjacent areas. It has never won a bid in School District S, but is well qualified to serve that
district and has often nearly won. Firm B would be counted as a rapid entrant in a market for school milk in
School District S.
More generally, if the relevant market is defined around targeted customers, firms that produce
relevant products but do not sell them to those customers may be rapid entrants if they can easily and
rapidly begin selling to the targeted customers.
Firms that clearly possess the necessary assets to supply into the relevant market rapidly may also be
rapid entrants. In markets for relatively homogeneous goods where a supplier’s ability to compete
depends predominantly on its costs and its capacity, and not on other factors such as experience or
reputation in the relevant market, a supplier with efficient idle capacity, or readily available “swing”
capacity currently used in adjacent markets that can easily and profitably be shifted to serve the
relevant market, may be a rapid entrant. However, idle capacity may be inefficient, and capacity
used in adjacent markets may not be available, so a firm’s possession of idle or swing capacity alone
does not make that firm a rapid entrant.
5.2 Market Shares
The Agencies normally calculate market shares for all firms that currently produce products in the
relevant market, subject to the availability of data. The Agencies also calculate market shares for
other market participants if this can be done to reliably reflect their competitive significance.
Market concentration and market share data are normally based on historical evidence. However,
recent or ongoing changes in market conditions may indicate that the current market share of a
particular firm either understates or overstates the firm’s future competitive significance. The
Agencies consider reasonably predictable effects of recent or ongoing changes in market conditions
when calculating and interpreting market share data. For example, if a new technology that is
important to long-term competitive viability is available to other firms in the market, but is not
available to a particular firm, the Agencies may conclude that that firm’s historical market share
8 If this type of supply side substitution is nearly universal among the firms selling one or more of a group of products,
the Agencies may use an aggregate description of markets for those products as a matter of convenience.
overstates its future competitive significance. The Agencies may project historical market shares into
the foreseeable future when this can be done reliably.
The Agencies measure market shares based on the best available indicator of firms’ future
competitive significance in the relevant market. This may depend upon the type of competitive effect
being considered, and on the availability of data. Typically, annual data are used, but where
individual transactions are large and infrequent so annual data may be unrepresentative, the Agencies
may measure market shares over a longer period of time.
In most contexts, the Agencies measure each firm’s market share based on its actual or projected
revenues in the relevant market. Revenues in the relevant market tend to be the best measure of
attractiveness to customers, since they reflect the real-world ability of firms to surmount all of the
obstacles necessary to offer products on terms and conditions that are attractive to customers. In cases
where one unit of a low-priced product can substitute for one unit of a higher-priced product, unit
sales may measure competitive significance better than revenues. For example, a new, much less
expensive product may have great competitive significance if it substantially erodes the revenues
earned by older, higher-priced products, even if it earns relatively few revenues. In cases where
customers sign long-term contracts, face switching costs, or tend to re-evaluate their suppliers only
occasionally, revenues earned from recently acquired customers may better reflect the competitive
significance of suppliers than do total revenues.
In markets for homogeneous products, a firm’s competitive significance may derive principally from
its ability and incentive to rapidly expand production in the relevant market in response to a price
increase or output reduction by others in that market. As a result, a firm’s competitive significance
may depend upon its level of readily available capacity to serve the relevant market if that capacity is
efficient enough to make such expansion profitable. In such markets, capacities or reserves may
better reflect the future competitive significance of suppliers than revenues, and the Agencies may
calculate market shares using those measures. Market participants that are not current producers may
then be assigned positive market shares, but only if a measure of their competitive significance
properly comparable to that of current producers is available. When market shares are measured
based on firms’ readily available capacities, the Agencies do not include capacity that is committed
or so profitably employed outside the relevant market, or so high-cost, that it would not likely be used
to respond to a SSNIP in the relevant market.
Example 18: The geographic market is defined around customers in the United States. Firm X produces the
relevant product outside the United States, and most of its sales are made to customers outside the United States.
In most contexts, Firm X’s market share will be based on its sales to U.S. customers, not its total sales or total
capacity. However, if the relevant product is homogeneous, and if Firm X would significantly expand sales to
U.S. customers rapidly and without incurring significant sunk costs in response to a SSNIP, the Agencies may
base Firm X’s market share on its readily available capacity to serve U.S. customers.
When the Agencies define markets serving targeted customers, these same principles are used to
measure market shares, as they apply to those customers. In most contexts, each firm’s market share
is based on its actual or projected revenues from the targeted customers. However, the Agencies may
instead measure market shares based on revenues from a broader group of customers if doing so
would more accurately reflect the competitive significance of different suppliers in the relevant
market. Revenues earned from a broader group of customers may also be used when better data are
thereby available. 17
5.3 Market Concentration
Market concentration is often one useful indicator of likely competitive effects of a merger. In
evaluating market concentration, the Agencies consider both the post-merger level of market
concentration and the change in concentration resulting from a merger. Market shares may not fully
reflect the competitive significance of firms in the market or the impact of a merger. They are used in
conjunction with other evidence of competitive effects. See Sections 6 and 7.
In analyzing mergers between an incumbent and a recent or potential entrant, to the extent the
Agencies use the change in concentration to evaluate competitive effects, they will do so using
projected market shares. A merger between an incumbent and a potential entrant can raise significant
competitive concerns. The lessening of competition resulting from such a merger is more likely to be
substantial, the larger is the market share of the incumbent, the greater is the competitive significance
of the potential entrant, and the greater is the competitive threat posed by this potential entrant
relative to others.
The Agencies give more weight to market concentration when market shares have been stable over
time, especially in the face of historical changes in relative prices or costs. If a firm has retained its
market share even after its price has increased relative to those of its rivals, that firm already faces
limited competitive constraints, making it less likely that its remaining rivals will replace the
competition lost if one of that firm’s important rivals is eliminated due to a merger. By contrast, even
a highly concentrated market can be very competitive if market shares fluctuate substantially over
short periods of time in response to changes in competitive offerings. However, if competition by one
of the merging firms has significantly contributed to these fluctuations, perhaps because it has acted
as a maverick, the Agencies will consider whether the merger will enhance market power by
combining that firm with one of its significant rivals.
The Agencies may measure market concentration using the number of significant competitors in the
market. This measure is most useful when there is a gap in market share between significant
competitors and smaller rivals or when it is difficult to measure revenues in the relevant market. The
Agencies also may consider the combined market share of the merging firms as an indicator of the
extent to which others in the market may not be able readily to replace competition between the
merging firms that is lost through the merger.
The Agencies often calculate the Herfindahl-Hirschman Index (“HHI”) of market concentration. The
9 and thus gives
HHI is calculated by summing the squares of the individual firms’ market shares,
proportionately greater weight to the larger market shares. When using the HHI, the Agencies
9 For example, a market consisting of four firms with market shares of thirty percent, thirty percent, twenty percent,
2 2 2 2
+ 30 + 20 + 20 = 2600). The HHI ranges from 10,000 (in the case of a
and twenty percent has an HHI of 2600 (30
pure monopoly) to a number approaching zero (in the case of an atomistic market). Although it is desirable to include
all firms in the calculation, lack of information about firms with small shares is not critical because such firms do not
affect the HHI significantly. 18
consider both the post-merger level of the HHI and the increase in the HHI resulting from the merger.
The increase in the HHI is equal to twice the product of the market shares of the merging firms.
Based on their experience, the Agencies generally classify markets into three types:
Unconcentrated Markets: HHI below 1500
Moderately Concentrated Markets: HHI between 1500 and 2500
Highly Concentrated Markets: HHI above 2500
The Agencies employ the following general standards for the relevant markets they have defined:
Small Change in Concentration: Mergers involving an increase in the HHI of less than 100
points are unlikely to have adverse competitive effects and ordinarily require no further
Unconcentrated Markets: Mergers resulting in unconcentrated markets are unlikely to have
adverse competitive effects and ordinarily require no further analysis.
Moderately Concentrated Markets: Mergers resulting in moderately concentrated markets that
involve an increase in the HHI of more than 100 points potentially raise significant
competitive concerns and often warrant scrutiny.
Highly Concentrated Markets: Mergers resulting in highly concentrated markets that involve
an increase in the HHI of between 100 points and 200 points potentially raise significant
competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated
markets that involve an increase in the HHI of more than 200 points will be presumed to be
likely to enhance market power. The presumption may be rebutted by persuasive evidence
showing that the merger is unlikely to enhance market power.
The purpose of these thresholds is not to provide a rigid screen to separate competitively benign
mergers from anticompetitive ones, although high levels of concentration do raise concerns. Rather,
they provide one way to identify some mergers unlikely to raise competitive concerns and some
others for which it is particularly important to examine whether other competitive factors confirm,
reinforce, or counteract the potentially harmful effects of increased concentration. The higher the
post-merger HHI and the increase in the HHI, the greater are the Agencies’ potential competitive
concerns and the greater is the likelihood that the Agencies will request additional information to
conduct their analysis.
10 For example, the merger of firms with shares of five percent and ten percent of the market would increase the HHI by
100 (5 × 10 × 2 = 100). 19
6. Unilateral Effects
The elimination of competition between two firms that results from their merger may alone constitute
a substantial lessening of competition. Such unilateral effects are most apparent in a merger to
monopoly in a relevant market, but are by no means limited to that case. Whether cognizable
efficiencies resulting from the merger are likely to reduce or reverse adverse unilateral effects is
addressed in Section 10.
Several common types of unilateral effects are discussed in this section. Section 6.1 discusses
unilateral price effects in markets with differentiated products. Section 6.2 discusses unilateral effects
in markets where sellers negotiate with buyers or prices are determined through auctions. Section 6.3
discusses unilateral effects relating to reductions in output or capacity in markets for relatively
homogeneous products. Section 6.4 discusses unilateral effects arising from diminished innovation or
reduced product variety. These effects do not exhaust the types of possible unilateral effects; for
example, exclusionary unilateral effects also can arise.
A merger may result in different unilateral effects along different dimensions of competition. For
example, a merger may increase prices in the short term but not raise longer-term concerns about
innovation, either because rivals will provide sufficient innovation competition or because the merger
will generate cognizable research and development efficiencies. See Section 10.
6.1 Pricing of Differentiated Products
In differentiated product industries, some products can be very close substitutes and compete strongly
with each other, while other products are more distant substitutes and compete less strongly. For
example, one high-end product may compete much more directly with another high-end product than
with any low-end product.
A merger between firms selling differentiated products may diminish competition by enabling the
merged firm to profit by unilaterally raising the price of one or both products above the pre-merger
level. Some of the sales lost due to the price rise will merely be diverted to the product of the merger
partner and, depending on relative margins, capturing such sales loss through merger may make the
price increase profitable even though it would not have been profitable prior to the merger.
The extent of direct competition between the products sold by the merging parties is central to the
evaluation of unilateral price effects. Unilateral price effects are greater, the more the buyers of
products sold by one merging firm consider products sold by the other merging firm to be their next
choice. The Agencies consider any reasonably available and reliable information to evaluate the
extent of direct competition between the products sold by the merging firms. This includes
documentary and testimonial evidence, win/loss reports and evidence from discount approval
processes, customer switching patterns, and customer surveys. The types of evidence relied on often
overlap substantially with the types of evidence of customer substitution relevant to the hypothetical
monopolist test. See Section 4.1.1.
Substantial unilateral price elevation post-merger for a product formerly sold by one of the merging
firms normally requires that a significant fraction of the customers purchasing that product view
products formerly sold by the other merging firm as their next-best choice. However, unless pre-
merger margins between price and incremental cost are low, that significant fraction need not
approach a majority. For this purpose, incremental cost is measured over the change in output that
would be caused by the price change considered. A merger may produce significant unilateral effects
for a given product even though many more sales are diverted to products sold by non-merging firms
than to products previously sold by the merger partner.
Example 19: In Example 5, the merged entity controlling Products A and B would raise prices ten percent, given
the product offerings and prices of other firms. In that example, one-third of the sales lost by Product A when its
price alone is raised are diverted to Product B. Further analysis is required to account for repositioning, entry,
In some cases, the Agencies may seek to quantify the extent of direct competition between a product
sold by one merging firm and a second product sold by the other merging firm by estimating the
diversion ratio from the first product to the second product. The diversion ratio is the fraction of unit
sales lost by the first product due to an increase in its price that would be diverted to the second
product. Diversion ratios between products sold by one merging firm and products sold by the other
merging firm can be very informative for assessing unilateral price effects, with higher diversion
ratios indicating a greater likelihood of such effects. Diversion ratios between products sold by
merging firms and those sold by non-merging firms have at most secondary predictive value.
Adverse unilateral price effects can arise when the merger gives the merged entity an incentive to
raise the price of a product previously sold by one merging firm and thereby divert sales to products
previously sold by the other merging firm, boosting the profits on the latter products. Taking as given
other prices and product offerings, that boost to profits is equal to the value to the merged firm of the
sales diverted to those products. The value of sales diverted to a product is equal to the number of
units diverted to that product multiplied by the margin between price and incremental cost on that
product. In some cases, where sufficient information is available, the Agencies assess the value of
diverted sales, which can serve as an indicator of the upward pricing pressure on the first product
resulting from the merger. Diagnosing unilateral price effects based on the value of diverted sales
need not rely on market definition or the calculation of market shares and concentration. The
Agencies rely much more on the value of diverted sales than on the level of the HHI for diagnosing
unilateral price effects in markets with differentiated products. If the value of diverted sales is
proportionately small, significant unilateral price effects are unlikely.
Where sufficient data are available, the Agencies may construct economic models designed to
quantify the unilateral price effects resulting from the merger. These models often include
independent price responses by non-merging firms. They also can incorporate merger-specific
efficiencies. These merger simulation methods need not rely on market definition. The Agencies do
not treat merger simulation evidence as conclusive in itself, and they place more weight on whether
their merger simulations consistently predict substantial price increases than on the precise prediction
of any single simulation.
11 For this purpose, the value of diverted sales is measured in proportion to the lost revenues attributable to the
reduction in unit sales resulting from the price increase. Those lost revenues equal the reduction in the number of
units sold of that product multiplied by that product’s price.
A merger is unlikely to generate substantial unilateral price increases if non-merging parties offer
very close substitutes for the products offered by the merging firms. In some cases, non-merging
firms may be able to reposition their products to offer close substitutes for the products offered by the
merging firms. Repositioning is a supply-side response that is evaluated much like entry, with
consideration given to timeliness, likelihood, and sufficiency. See Section 9. The Agencies consider
whether repositioning would be sufficient to deter or counteract what otherwise would be significant
anticompetitive unilateral effects from a differentiated products merger.
6.2 Bargaining and Auctions
In many industries, especially those involving intermediate goods and services, buyers and sellers
negotiate to determine prices and other terms of trade. In that process, buyers commonly negotiate
with more than one seller, and may play sellers off against one another. Some highly structured forms
of such competition are known as auctions. Negotiations often combine aspects of an auction with
aspects of one-on-one negotiation, although pure auctions are sometimes used in government
procurement and elsewhere.
A merger between two competing sellers prevents buyers from playing those sellers off against each
other in negotiations. This alone can significantly enhance the ability and incentive of the merged
entity to obtain a result more favorable to it, and less favorable to the buyer, than the merging firms
would have offered separately absent the merger. The Agencies analyze unilateral effects of this type
using similar approaches to those described in Section 6.1.
Anticompetitive unilateral effects in these settings are likely in proportion to the frequency or
probability with which, prior to the merger, one of the merging sellers had been the runner-up when
the other won the business. These effects also are likely to be greater, the greater advantage the
runner-up merging firm has over other suppliers in meeting customers’ needs. These effects also tend
to be greater, the more profitable were the pre-merger winning bids. All of these factors are likely to
be small if there are many equally placed bidders.
The mechanisms of these anticompetitive unilateral effects, and the indicia of their likelihood, differ
somewhat according to the bargaining practices used, the auction format, and the sellers’ information
about one another’s costs and about buyers’ preferences. For example, when the merging sellers are
likely to know which buyers they are best and second best placed to serve, any anticompetitive
unilateral effects are apt to be targeted at those buyers; when sellers are less well informed, such
effects are more apt to be spread over a broader class of buyers.
6.3 Capacity and Output for Homogeneous Products
In markets involving relatively undifferentiated products, the Agencies may evaluate whether the
merged firm will find it profitable unilaterally to suppress output and elevate the market price. A firm
may leave capacity idle, refrain from building or obtaining capacity that would have been obtained
absent the merger, or eliminate pre-existing production capabilities. A firm may also divert the use of
capacity away from one relevant market and into another so as to raise the price in the former market.
The competitive analyses of these alternative modes of output suppression may differ.
A unilateral output suppression strategy is more likely to be profitable when (1) the merged firm’s
market share is relatively high; (2) the share of the merged firm’s output already committed for sale
at prices unaffected by the output suppression is relatively low; (3) the margin on the suppressed
output is relatively low; (4) the supply responses of rivals are relatively small; and (5) the market
elasticity of demand is relatively low.
A merger may provide the merged firm a larger base of sales on which to benefit from the resulting
price rise, or it may eliminate a competitor that otherwise could have expanded its output in response
to the price rise.
Example 20: Firms A and B both produce an industrial commodity and propose to merge. The demand for this
commodity is insensitive to price. Firm A is the market leader. Firm B produces substantial output, but its
operating margins are low because it operates high-cost plants. The other suppliers are operating very near
capacity. The merged firm has an incentive to reduce output at the high-cost plants, perhaps shutting down some
of that capacity, thus driving up the price it receives on the remainder of its output. The merger harms customers,
notwithstanding that the merged firm shifts some output from high-cost plants to low-cost plants.
In some cases, a merger between a firm with a substantial share of the sales in the market and a firm
with significant excess capacity to serve that market can make an output suppression strategy
profitable. This can occur even if the firm with the excess capacity has a relatively small share of
sales, if that firm’s ability to expand, and thus keep price from rising, has been making an output
suppression strategy unprofitable for the firm with the larger market share.
6.4 Innovation and Product Variety
Competition often spurs firms to innovate. The Agencies may consider whether a merger is likely to
diminish innovation competition by encouraging the merged firm to curtail its innovative efforts
below the level that would prevail in the absence of the merger. That curtailment of innovation could
take the form of reduced incentive to continue with an existing product-development effort or
reduced incentive to initiate development of new products.
The first of these effects is most likely to occur if at least one of the merging firms is engaging in
efforts to introduce new products that would capture substantial revenues from the other merging
firm. The second, longer-run effect is most likely to occur if at least one of the merging firms has
capabilities that are likely to lead it to develop new products in the future that would capture
substantial revenues from the other merging firm. The Agencies therefore also consider whether a
merger will diminish innovation competition by combining two of a very small number of firms with
the strongest capabilities to successfully innovate in a specific direction.
The Agencies evaluate the extent to which successful innovation by one merging firm is likely to take
sales from the other, and the extent to which post-merger incentives for future innovation will be
lower than those that would prevail in the absence of the merger. The Agencies also consider whether
the merger is likely to enable innovation that would not otherwise take place, by bringing together
12 Such a merger also can cause adverse coordinated effects, especially if the acquired firm with excess capacity was
disrupting effective coordination. 23
complementary capabilities that cannot be otherwise combined or for some other merger-specific
reason. See Section 10.
The Agencies also consider whether a merger is likely to give the merged firm an incentive to cease
offering one of the relevant products sold by the merging parties. Reductions in variety following a
merger may or may not be anticompetitive. Mergers can lead to the efficient consolidation of
products when variety offers little in value to customers. In other cases, a merger may increase
variety by encouraging the merged firm to reposition its products to be more differentiated from one
If the merged firm would withdraw a product that a significant number of customers strongly prefer
to those products that would remain available, this can constitute a harm to customers over and above
any effects on the price or quality of any given product. If there is evidence of such an effect, the
Agencies may inquire whether the reduction in variety is largely due to a loss of competitive
incentives attributable to the merger. An anticompetitive incentive to eliminate a product as a result
of the merger is greater and more likely, the larger is the share of profits from that product coming at
the expense of profits from products sold by the merger partner. Where a merger substantially
reduces competition by bringing two close substitute products under common ownership, and one of
those products is eliminated, the merger will often also lead to a price increase on the remaining
product, but that is not a necessary condition for anticompetitive effect.
Example 21: Firm A sells a high-end product at a premium price. Firm B sells a mid-range product at a lower
price, serving customers who are more price sensitive. Several other firms have low-end products. Firms A and
B together have a large share of the relevant market. Firm A proposes to acquire Firm B and discontinue Firm
B’s product. Firm A expects to retain most of Firm B’s customers. Firm A may not find it profitable to raise the
price of its high-end product after the merger, because doing so would reduce its ability to retain Firm B’s more
price-sensitive customers. The Agencies may conclude that the withdrawal of Firm B’s product results from a
loss of competition and materially harms customers.
7. Coordinated Effects
A merger may diminish competition by enabling or encouraging post-merger coordinated interaction
among firms in the relevant market that harms customers. Coordinated interaction involves conduct
by multiple firms that is profitable for each of them only as a result of the accommodating reactions
of the others. These reactions can blunt a firm’s incentive to offer customers better deals by
undercutting the extent to which such a move would win business away from rivals. They also can
enhance a firm’s incentive to raise prices, by assuaging the fear that such a move would lose
customers to rivals.
Coordinated interaction includes a range of conduct. Coordinated interaction can involve the explicit
negotiation of a common understanding of how firms will compete or refrain from competing. Such
conduct typically would itself violate the antitrust laws. Coordinated interaction also can involve a
similar common understanding that is not explicitly negotiated but would be enforced by the
detection and punishment of deviations that would undermine the coordinated interaction.
Coordinated interaction alternatively can involve parallel accommodating conduct not pursuant to a
prior understanding. Parallel accommodating conduct includes situations in which each rival’s
response to competitive moves made by others is individually rational, and not motivated by
retaliation or deterrence nor intended to sustain an agreed-upon market outcome, but nevertheless
emboldens price increases and weakens competitive incentives to reduce prices or offer customers
better terms. Coordinated interaction includes conduct not otherwise condemned by the antitrust
The ability of rival firms to engage in coordinated conduct depends on the strength and predictability
of rivals’ responses to a price change or other competitive initiative. Under some circumstances, a
merger can result in market concentration sufficient to strengthen such responses or enable multiple
firms in the market to predict them more confidently, thereby affecting the competitive incentives of
multiple firms in the market, not just the merged firm.
7.1 Impact of Merger on Coordinated Interaction
The Agencies examine whether a merger is likely to change the manner in which market participants
interact, inducing substantially more coordinated interaction. The Agencies seek to identify how a
merger might significantly weaken competitive incentives through an increase in the strength, extent,
or likelihood of coordinated conduct. There are, however, numerous forms of coordination, and the
risk that a merger will induce adverse coordinated effects may not be susceptible to quantification or
detailed proof. Therefore, the Agencies evaluate the risk of coordinated effects using measures of
market concentration (see Section 5) in conjunction with an assessment of whether a market is
vulnerable to coordinated conduct. See Section 7.2. The analysis in Section 7.2 applies to moderately
and highly concentrated markets, as unconcentrated markets are unlikely to be vulnerable to
Pursuant to the Clayton Act’s incipiency standard, the Agencies may challenge mergers that in their
judgment pose a real danger of harm through coordinated effects, even without specific evidence
showing precisely how the coordination likely would take place. The Agencies are likely to challenge
a merger if the following three conditions are all met: (1) the merger would significantly increase
concentration and lead to a moderately or highly concentrated market; (2) that market shows signs of
vulnerability to coordinated conduct (see Section 7.2); and (3) the Agencies have a credible basis on
which to conclude that the merger may enhance that vulnerability. An acquisition eliminating a
maverick firm (see Section 2.1.5) in a market vulnerable to coordinated conduct is likely to cause
adverse coordinated effects.
7.2 Evidence a Market is Vulnerable to Coordinated Conduct
The Agencies presume that market conditions are conducive to coordinated interaction if firms
representing a substantial share in the relevant market appear to have previously engaged in express
collusion affecting the relevant market, unless competitive conditions in the market have since
changed significantly. Previous express collusion in another geographic market will have the same
weight if the salient characteristics of that other market at the time of the collusion are comparable to
those in the relevant market. Failed previous attempts at collusion in the relevant market suggest that
successful collusion was difficult pre-merger but not so difficult as to deter attempts, and a merger
may tend to make success more likely. Previous collusion or attempted collusion in another product
market may also be given substantial weight if the salient characteristics of that other market at the
time of the collusion are closely comparable to those in the relevant market.
A market typically is more vulnerable to coordinated conduct if each competitively important firm’s
significant competitive initiatives can be promptly and confidently observed by that firm’s rivals.
This is more likely to be the case if the terms offered to customers are relatively transparent. Price
transparency can be greater for relatively homogeneous products. Even if terms of dealing are not
transparent, transparency regarding the identities of the firms serving particular customers can give
rise to coordination, e.g., through customer or territorial allocation. Regular monitoring by suppliers
of one another’s prices or customers can indicate that the terms offered to customers are relatively
A market typically is more vulnerable to coordinated conduct if a firm’s prospective competitive
reward from attracting customers away from its rivals will be significantly diminished by likely
responses of those rivals. This is more likely to be the case, the stronger and faster are the responses
the firm anticipates from its rivals. The firm is more likely to anticipate strong responses if there are
few significant competitors, if products in the relevant market are relatively homogeneous, if
customers find it relatively easy to switch between suppliers, or if suppliers use meeting-competition
A firm is more likely to be deterred from making competitive initiatives by whatever responses occur
if sales are small and frequent rather than via occasional large and long-term contracts or if relatively
few customers will switch to it before rivals are able to respond. A firm is less likely to be deterred by
whatever responses occur if the firm has little stake in the status quo. For example, a firm with a
small market share that can quickly and dramatically expand, constrained neither by limits on
production nor by customer reluctance to switch providers or to entrust business to a historically
small provider, is unlikely to be deterred. Firms are also less likely to be deterred by whatever
responses occur if competition in the relevant market is marked by leapfrogging technological
innovation, so that responses by competitors leave the gains from successful innovation largely intact.
A market is more apt to be vulnerable to coordinated conduct if the firm initiating a price increase
will lose relatively few customers after rivals respond to the increase. Similarly, a market is more apt
to be vulnerable to coordinated conduct if a firm that first offers a lower price or improved product to
customers will retain relatively few customers thus attracted away from its rivals after those rivals
The Agencies regard coordinated interaction as more likely, the more the participants stand to gain
from successful coordination. Coordination generally is more profitable, the lower is the market
elasticity of demand.
Coordinated conduct can harm customers even if not all firms in the relevant market engage in the
coordination, but significant harm normally is likely only if a substantial part of the market is subject
to such conduct. The prospect of harm depends on the collective market power, in the relevant
market, of firms whose incentives to compete are substantially weakened by coordinated conduct.
This collective market power is greater, the lower is the market elasticity of demand. This collective
market power is diminished by the presence of other market participants with small market shares
and little stake in the outcome resulting from the coordinated conduct, if these firms can rapidly
expand their sales in the relevant market. 26
Buyer characteristics and the nature of the procurement process can affect coordination. For example,
sellers may have the incentive to bid aggressively for a large contract even if they expect strong
responses by rivals. This is especially the case for sellers with small market shares, if they can
realistically win such large contracts. In some cases, a large buyer may be able to strategically
undermine coordinated conduct, at least as it pertains to that buyer’s needs, by choosing to put up for
bid a few large contracts rather than many smaller ones, and by making its procurement decisions
opaque to suppliers.
8. Powerful Buyers
Powerful buyers are often able to negotiate favorable terms with their suppliers. Such terms may
reflect the lower costs of serving these buyers, but they also can reflect price discrimination in their
The Agencies consider the possibility that powerful buyers may constrain the ability of the merging
parties to raise prices. This can occur, for example, if powerful buyers have the ability and incentive
to vertically integrate upstream or sponsor entry, or if the conduct or presence of large buyers
undermines coordinated effects. However, the Agencies do not presume that the presence of powerful
buyers alone forestalls adverse competitive effects flowing from the merger. Even buyers that can
negotiate favorable terms may be harmed by an increase in market power. The Agencies examine the
choices available to powerful buyers and how those choices likely would change due to the merger.
Normally, a merger that eliminates a supplier whose presence contributed significantly to a buyer’s
negotiating leverage will harm that buyer.
Example 22: Customer C has been able to negotiate lower pre-merger prices than other customers by threatening
to shift its large volume of purchases from one merging firm to the other. No other suppliers are as well placed to
meet Customer C’s needs for volume and reliability. The merger is likely to harm Customer C. In this situation,
the Agencies could identify a price discrimination market consisting of Customer C and similarly placed
customers. The merger threatens to end previous price discrimination in their favor.
Furthermore, even if some powerful buyers could protect themselves, the Agencies also consider
whether market power can be exercised against other buyers.
Example 23: In Example 22, if Customer C instead obtained the lower pre-merger prices based on a credible
threat to supply its own needs, or to sponsor new entry, Customer C might not be harmed. However, even in this
case, other customers may still be harmed.
The analysis of competitive effects in Sections 6 and 7 focuses on current participants in the relevant
market. That analysis may also include some forms of entry. Firms that would rapidly and easily
enter the market in response to a SSNIP are market participants and may be assigned market shares.
See Sections 5.1 and 5.2. Firms that have, prior to the merger, committed to entering the market also
will normally be treated as market participants. See Section 5.1. This section concerns entry or
adjustments to pre-existing entry plans that are induced by the merger.
+1 anno fa
Materiale didattico per il corso di Economia Industriale del prof. Andrea Mantovani. Trattasi di un testo del Dipartimento di Giustizia degli Stati Uniti d'America all'interno del quale sono illustrate le principali tecniche e modalità d'intervento per la tutela della concorrenza ed il controllo della concentrazione delle attività economiche attraverso le acquisizioni e le fusioni di aziende.
I contenuti di questa pagina costituiscono rielaborazioni personali del Publisher Atreyu di informazioni apprese con la frequenza delle lezioni di Economia industriale e studio autonomo di eventuali libri di riferimento in preparazione dell'esame finale o della tesi. Non devono intendersi come materiale ufficiale dell'università Bologna - Unibo o del prof Mantovani Andrea.
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