Since at least 2017, when the U.S. Department of Justice (DOJ) sued to block a vertical merger, the business press has been atwitter about the antitrust enforcement agencies' views of such mergers, as we covered here.
The Federal Trade Commission (FTC) answered in a January 2018 speech by Bruce Hoffman, then-acting director of the Bureau of Competition, stating that "[c]ontrary to the popular view in the business press . . . vertical merger review has been and continues to be a meaningful and important part of the FTC (and DOJ) merger enforcement." The thrust of Director Hoffman's speech, which we reviewed here, was threefold: (1) antitrust enforcers have a long history of investigating vertical mergers; (2) the FTC usually relies on three established theories of competitive harm for reviewing vertical mergers; and (3) "no one should be surprised" if the antitrust enforcers seek relief for proposed vertical mergers.
The outcome of a recent vertical merger investigation by the FTC reveals that the review of such mergers may not be as cut and dried.
Last week the FTC announced that it would permit one of the largest providers of in-clinic dialysis treatment to acquire the largest supplier of in-home hemodialysis machines. The FTC viewed this transaction as vertical because the in-clinic providers purchase the in-home machines for provision to patients who can be migrated from in-clinic to in-home dialysis.
Citing one of the three theories of competitive harm from vertical mergers – anticompetitive foreclosure – the majority of commissioners reasoned that this potential harm is not supported by the evidence. Specifically, the majority stated that input foreclosure is not a concern because evidence showed the combined company would be incentivized to sell in-home machines to its competitors. Likewise, customer foreclosure is not a problem, the majority explained, because other companies said they plan to start supplying competing in-home machines.
A dissenting statement by Commissioner Chopra, however, took a very different view. He stated that the market at issue resembles a duopoly, with the merged company and one other supplying about 85 percent of the in-clinic and in-home customers. He concluded that potential suppliers of competing in-home machines would be unable to enter this "unfriendly environment." He urged the other commissioners to provide more explanation of its decision given "the complexity" of the vertical merger case.
While commissioners sometimes reach different conclusions on the particulars of mergers, this split decision reflects that antitrust enforcement agencies continue to debate fundamental aspects of vertical merger review and enforcement, including, in this instance, the very types and sources of potentially anticompetitive effects to be analyzed. Given that the U.S. enforcers have not issued formal "guidelines" for how to analyze non-horizontal combinations since 1984, this debate likely will continue both among government enforcers and with private parties to vertical mergers that are filed, investigated, and litigated.
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