Comment on the Proposed Update on the Horizontal Merger Guidelines: Accounting for Out-of-Market Efficiencies


The market definition analysis endorsed by the 2010 Proposed Horizontal Merger Guidelines (“new HMGs”) tends toward narrower relevant markets. Because the merging parties cannot point to the consumer gains outside of the narrowly defined product market, the new approach could lead to Section 7 liability for mergers that result in net increases in consumer welfare. This “out of market” efficiency problem obviously does not originate with the new HMGs, nor with the HMGs at all. However, the value of diversion approach to market definition is likely to dramatically increase its practical significance. Failure to incorporate “out of market” efficiencies into merger analysis flies in the face of the modern trend in favor of analyzing actual competitive effects rather than adopting simplifying and potentially misleading proxies. Further, the value of diversion approach adopted by the new HMGs is likely to increase the need for guidance on this score. This comment proposed that the new HMGs amend note 11 to make clear that they would not bring enforcement actions where the Agencies can prove anticompetitive effects in a narrower market, but where the evidence also supports the conclusion that out of market efficiencies are sufficient to eliminate consumer harm in the aggregate. A commitment to forbear from challenging mergers where out of market efficiencies outweigh anticompetitive effects merely updates the new HMGs in a manner consistent with the modern intellectual foundation of merger analysis.