Antitrust Magazine Online, February 2023. © 2023 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
After a hiatus of several decades, the government has tried three prominent vertical merger cases in the past four years. These are the DOJ’s effort to stop the acquisition of Time Warner programming by AT&T in 2018 (AT&T), the FTC’s effort to stop the acquisition of Grail by Illumina in 2021 (Illumina) and the DOJ’s effort to stop the acquisition of Change Health Care by United Health Group in 2022 (UnitedHealth).
In each case, the government’s central allegation has been founded on the theory that the merged company will allegedly acquire the “ability and incentive” to use its control of a critical input to disadvantage its rivals. Disadvantaging rivals could take many forms, including raising rivals’ cost of the input, the full foreclosure of rivals, degrading the quality of input sold to rivals, abusing business sensitive information about rivals with the effect of slowing down rivals’ innovation, denying necessary technical assistance to rivals, etc.1
Proof of the ability to foreclose is typically offered by demonstrating that there are no adequate substitutes of the input, i.e., that the input supplier has market power. On the other hand, the government’s analysis of whether a merged company will have the incentives to foreclose its rivals is typically undertaken by a forward-looking (prospective) analysis of the short-run economic gains and losses to the merged company from foreclosing its rivals.2 Although the government’s incentive analysis has a sound basis in economic theory and logic, the courts have been skeptical about enjoining mergers based on a prospective theory of economic incentives. In AT&T, Illumina, and UnitedHealth, the courts rejected the government’s affirmative (prima facie) case, criticizing its incentive analysis as not grounded in actual pre-merger evidence.3
In this article published in the Antitrust Magazine Online, Gopal Das Varma analyzes court opinions in the government’s recent unsuccessful efforts to enjoin vertical mergers and explores the types of evidence that the government can offer to persuade the courts in future cases.
