Analyzing Vertical Mergers: Accounting for the Unilateral Effects Tradeoff and Thinking Holistically About Efficiencies

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See all articles by Roger D. Blair

Roger D. Blair

University of Florida - Warrington College of Business Administration - Department of Economics

Christine Wilson

Government of the United States of America - Federal Trade Commission

D. Daniel Sokol

University of Florida Levin College of Law; Department of Information Systems and Operations Management

Keith Klovers

Wilson Sonsini Goodrich & Rosati

Jeremy Sandford

Government of the United States of America - Federal Trade Commission

Date Written: July 7, 2020

Abstract

With the adoption of the 2020 Vertical Merger Guidelines, the U.S. antitrust agencies have updated their guidance on vertical mergers for the Twenty-First Century. Although economists have long recognized the procompetitive benefits most vertical mergers generate, the law has not always followed suit, and has sometimes condemned vertical mergers for making the merged firm more efficient. In this article, we attempt to catalogue the extensive list of efficiencies that vertical mergers can generate, trace the often halting efforts to incorporate these insights into the law, and propose a framework that courts and agencies can use to assess the likely competitive effects of vertical transactions. We draw heavily upon leading cases, particularly Baker Hughes and AT&T, with two refinements. First, consistent with the final Guidelines (but not the earlier draft) and the economic literature noting a symmetry between unilateral anticompetitive effects (raising rivals’ costs) and procompetitive effects (the elimination of double marginalization), which we call the “unilateral effects tradeoff,” we argue a plaintiff alleging a raising rivals cost (RRC) theory of harm must also address EDM as part of its prima facie case. Second, if the plaintiff carries its prima facie burden, then the defendant should be able to argue, and courts and Agencies should seriously consider, the full range of procompetitive efficiencies, which we call a “holistic efficiency analysis.”

Keywords: antitrust, vertical mergers, raising rivals costs, efficiencies, elimination of double marginalization

JEL Classification: k21, l40

Suggested Citation

Blair, Roger D. and Wilson, Christine and Sokol, D. Daniel and Klovers, Keith and Sandford, Jeremy, Analyzing Vertical Mergers: Accounting for the Unilateral Effects Tradeoff and Thinking Holistically About Efficiencies (July 7, 2020). George Mason Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=

Roger D. Blair

University of Florida - Warrington College of Business Administration - Department of Economics ( email )

342 Matherly Hall
Gainesville, FL 32611-7140
United States
352-392-0179 (Phone)
352-392-7860 (Fax)

Christine Wilson

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

D. Daniel Sokol (Contact Author)

University of Florida Levin College of Law ( email )

Spessard L. Holland Law Center
P.O. Box 117625
Gainesville, FL 32611-7625
United States
(352) 273-0968 (Phone)
(352) 392-3005 (Fax)

HOME PAGE: http://www.law.ufl.edu/faculty/d-daniel-sokol

Department of Information Systems and Operations Management ( email )

Warrington College of Business
ISOM Department STZ
Gainesville, FL 32611-7169
United States

Keith Klovers

Wilson Sonsini Goodrich & Rosati ( email )

650 Page Mill Rd
Palo Alto, CA 94304-1050
United States

Jeremy Sandford

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

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