How Will the FTC Evaluate Vertical Mergers?

By: Herbert Hovenkamp & Carl Shapiro (Pro Market)

On September 15^th, 2021, by a 3-2 vote, the Federal Trade Commission withdrew the Vertical Merger Guidelines that had been jointly issued by the FTC and the Department of Justice in 2020.

In some respects, the FTC’s action makes perfect sense: two Democratic Commissioners had dissented when the VMGs were issued, FTC Chair Lina Khan’s writings made clear her antipathy to vertical integration before she was nominated, and good government requires that agency guidelines accurately reflect current enforcement policy. 

But there are some very worrisome aspects of what the FTC just did. 

First, the Department of Justice did not withdraw the 2020 VMGs. It issued a statement saying that the 2020 VMGs “remain in place” at the Department of Justice. This leaves the Biden Administration law enforcement policy regarding vertical mergers in disarray, creating wholly unnecessary uncertainty for the business community. Is that really what the White House wants?

Second, contrary to its transparency rhetoric, the FTC acted without the benefit of any public comment. As the DOJ pointed out in its statement: “Public comment, which has not yet been sought on the substantial changes made to the published version of the Vertical Merger Guidelines, will be helpful in considering a range of questions.” 

Third, in its attempt to explain why it withdrew the 2020 VMGs, the FTC majority statement relied on specious economic arguments. The majority critiqued “the 2020 VMGs’ flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization (“EDM”).”  This “could become difficult to correct if relied on by courts…”

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