Quantifying the Increase in 'Effective Concentration' from Vertical Mergers that Raise Input Foreclosure Concerns: Comment on the Draft Vertical Merger Guidelines

25 Pages Posted: 19 Mar 2020

See all articles by Steven C. Salop

Steven C. Salop

Georgetown University Law Center

Serge Moresi

Charles River Associates (CRA)

Date Written: February 24, 2020

Abstract

This comment responds to the request by the Federal Trade Commission and the Department of Justice’s Antitrust Division for public comment on the draft 2020 Vertical Merger Guidelines. In this comment, we show that there is an inherent loss of an indirect competitor and competition when a vertical merger raises input foreclosure concerns. We also show that it then is possible to calculate an effective increase in the HHI measure of concentration for the downstream market. We refer to this “proxy” measure as the “dHHI.” We derive the dHHI measure by comparing the pricing incentives and associated upward pricing pressure (“UPP”) involved in two alternative types of acquisitions: (i) vertical mergers that raise unilateral input foreclosure concerns (and the associated vertical GUPPI measures), and (ii) horizontal acquisitions of partial ownership interests among competitors that raise unilateral effects concerns (and the associated modified GUPPI and modified HHI measures).

Keywords: Vertical Merger Guidelines, Foreclosure, Hypothetical Horizontal Transactions

Suggested Citation

Salop, Steven C. and Moresi, Serge, Quantifying the Increase in 'Effective Concentration' from Vertical Mergers that Raise Input Foreclosure Concerns: Comment on the Draft Vertical Merger Guidelines (February 24, 2020). Available at SSRN: https://ssrn.com/abstract=3543774 or http://dx.doi.org/10.2139/ssrn.3543774

Steven C. Salop (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States
202-662-9095 (Phone)
202-662-9497 (Fax)

Serge Moresi

Charles River Associates (CRA) ( email )

1201 F Street, NW
Suite 700
Washington, DC 20004
United States
(202)662-3847 (Phone)

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