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 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,

and efficiencies.

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

coordinated conduct.

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.

9. Entry

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.





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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.

Corso di laurea: Corso di laurea in economia, mercati e istituzioni
Università: Bologna - Unibo
A.A.: 2011-2012

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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