Mergers of Complements

Abstract

Mergers have always been divided into three categories: mergers of competitors (horizontal), mergers of actual or potential buyers and sellers (vertical), and potential competition mergers. This classification system seriously understates the role of complements in mergers. Complements are things that are produced or consumed together, and most mergers involve some complementary features. Vertical mergers are simply a special case of mergers of complements. Mergers that involve networks or ecosystems also typically include substantial complementary relationships.

To the extent a merger involves complements, concerns about competition are less and the range of efficiency claims is larger. The structural thresholds that the Merger Guidelines give for mergers of competitors do not work for complements, at least not in their current form.

The courts, including the Supreme Court, have often recognized the presence of complements in merger cases. Many decisions have also recognized that the principal impact of a merger of complements is to enable two complementary goods to be united more cheaply or with other beneficial results. Justice Holmes recognized this already in 1918. He rejected the government’s first acknowledged challenge to a merger of complements, dismissing it as nothing more than “an effort after greater efficiency.” While many courts have recognized complementary relationships, however, they have not always responded in the same way. Rather than seeing lower production or distribution costs or improved product quality as a good thing, some decisions in the 1960s and 1970s condemned them because they created a competitive advantage over rivals who had not attained the same benefits.

Keywords: mergers, complements, competitors, efficiencies, clayton act