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Antitrust Regulators Mull Reworking of Key Merger Review Metric

Jan. 28, 2022, 11:00 AM

Antitrust regulators’ long-held metric used in supporting their lawsuits to block mergers is headed for a revamp as they look for more modern ways to curb anticompetitive impacts.

The Federal Trade Commission and Justice Department are asking the public if they should make changes to their “market definition” analysis, a fact-intensive undertaking that requires defining a particular market of products or consumers wherein the proposed deal may lead to competitive dominance.

When suing to block mergers, the agencies must convince a court that the deal would cause price increases or other types of harm to that defined market.

But in considering changes to that metric, the agencies could be contemplating moving away from trying to capture what could happen in the future, and instead heightening their analysis of direct evidence of harm, such as proof that the companies previously competed in a particular region, attorneys said.

“They’re saying ‘we’re not necessarily going to rely on that hypothetical monopoly test. We’re going to look to a qualitative basis rather than a quantitative basis,’” said Jack Sidorov, senior counsel at Lowenstein Sandler LLP.

Relying more on direct evidence of harm to expand the ways the agencies define affected markets could lead to more proposed mergers being subject to lawsuits and other types of enforcement, attorneys say.

“I imagine the reason the agencies are bringing up market definition as part of this review process is because they want to make it easier to bring a challenge,” said Craig Minerva, counsel at Axinn, Veltrop & Harkrider LLP.

Heightened Oversight

The new guidelines are the latest step taken by the FTC and DOJ, under the Biden administration, to heighten their oversight of large mergers and acquisitions. President Joe Biden called on the agencies to review merger guidelines in a July 2021 executive order.

“In a dynamic, multidimensional economy, the static formalism of market definition may not always be the most reliable tool for assessing the potential harms of mergers,” DOJ antitrust chief Jonathan Kanter said Jan. 18 during a joint event with FTC Chair Lina Khan to announce their requests for information.

“We hope to learn more through this process about the additional tools that rely on direct sources of evidence such as addition of market power and head to head competition between merging parties that may be more reliable in some situations than market definition,” Kanter said.

Defining the impacted market has underpinned decades of antitrust regulators’ merger enforcement, attorneys said. Once the market is defined, the agencies assert a theory of harm or allege anticipated anticompetitive impacts on that market.

But the agencies have been less successful in convincing a court to uphold their merger challenges, practitioners said.

“There’s been a hunch that excessive reliance on market definition is one of the reasons why merger policy has not been very effective,” said Herbert Hovenkamp, an antitrust law professor at the University of Pennsylvania.

SSNIP TEST

One of the components regulators use to reach a market definition—the small but significant non-transitory increase in price (SSNIP) test—could be subject to an overhaul, attorneys said. The SSNIP test analyzes a subset of products to determine if a deal will have a “small but significant” increase in the price of those products.

In their Jan. 18 request for information, the FTC and DOJ asked whether the focus on the SSNIP test in determining the market definition obscures “the various types of harms in addition to price effects that may arise.”

If agencies want to focus on harms other than those tied to prices in their merger challenges, SSNIP is the most direct example of a test that could come under scrutiny, Sidorov said.

“The SSNIP analysis may not be readily applicable in instances such as tech markets, where the effect on competition is not price related—its quality, innovation, and privacy,” he said.

U.S. District Judge James Boasberg’s dismissal last year of the FTC’s bid to undo Facebook Inc.'s acquisition of Instagram and WhatsApp is an example of why SSNIP may be insufficient in the current economy, Sidorov said.

The agency’s alleged harms generated by the deals aren’t directly related to consumer prices. And the FTC, in its market definition, failed to present evidence that Facebook controlled more than 60% of the “personal social networking services” market, Boasberg said.

The agency has since filed an amended complaint, which earlier this month survived Facebook’s motion to dismiss.

The agencies appear to want a mode of analysis that’s analytically rigorous, but will help them be more successful in trying to block mergers, said Eric Barstad, counsel at Robins Kaplan LLP.

“I think the agencies are trying to downplay the centrality and necessity of the formal market definition in the merger enforcement process,” he said.

To contact the reporter on this story: Siri Bulusu in Washington at sbulusu@bloombergindustry.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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