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Presumptions in Vertical Mergers: The Role of Evidence


Vertical mergers have attracted much attention in recent years. We assess the role of presumptions and likelihoods in vertical merger analysis and guidelines. We focus in particular on the role that we believe statistical evidence in general—and retrospective analyses more specifically—should play in determining presumptions. We also discuss how horizontal merger guidelines provide frameworks to analyze the horizontal issues that can be associated with vertical mergers. We conclude that while some vertical mergers may raise concerns, the evidence at this point does not provide sufficient guidance to develop presumptions that are related to strictly vertical issues.

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  1. Brown Shoe Co. v. United States, 370 U.S. 294 (1962).

  2. Id. at 323–324

  3. See, e.g., Church (2008).

  4. Per footnote 1 of the new VMG, “These Guidelines supersede the extant portions of the Department of Justice’s 1984 Merger Guidelines, which are now withdrawn and superseded in their entirety.”

  5. See Salop and Culley (2016)—and in particular the appendix to that paper which has been updated to 2020—for a listing of 66 enforcement actions by the U.S. antitrust authorities that the authors have identified as vertical merger enforcement actions between 1994 and 2020. See also Ross and Winter, this issue, for a list of vertical merger cases that have been reviewed in Canada over the last decade. Of course, these lists are a subset of the matters that are examined by the authorities, since matters that are dropped during or after investigation, either by the firms or the authorities, are by definition excluded.

  6. See e.g. Church (2008) for an overview.

  7. Salop and Culley (2016), which enumerates all U.S. vertical merger actions in the past 25 years, can be used to determine the characteristics of the industries that have caused concern.

  8. Sheu and Taragin (2021) provide a general framework for simulating vertical mergers under various sets of assumptions with respect to upstream and downstream markets and the link between the two.

  9. See e.g., Peters (2006), Slade (1998), Weinberg and Hosken (2013) and Bjornersyedt and Verboven (2016).

  10. In the AT&T/Time Warner case, for example, the judge indicated that under U.S. law, harms have to be probable or likely—an assessment of which often hinges on estimates and their variance across models. Similarly, in Canada, the Supreme Court “has ruled that the government has the burden to provide quantitative evidence of a lessening of competition whenever quantification is possible” (Ross and Winter, this issue).

  11. Excellent examples of this sort of analysis include Crawford et al. (2018) and Cuesta et al. (2019).

  12. The FTC analyzed this merger and negotiated a consent agreement with regard to it. The imposed remedy included both structural—divestiture—and behavioral components that addressed the FTC’s concerns with regard to the potential effect of the merger on consumer welfare. See for more details. As a result, the analyses in this paper represent the effects of the merger given this remedy.

  13. Indeed, assessing the effect of hospital horizontal mergers in a context where the courts had allowed mergers that the agencies had tried to block was part of the goal of the health care retrospective merger program at the FTC in the early 2000s. See Ashenfelter et al. (2011) for more on this program and the resulting studies.

  14. Ashenfelter et al. (2009) and Kwoka (2015) review the horizontal merger retrospective literature. Also see Vita and Osinski (2018) for a critique of Kwoka’s review.

  15. In particular, the VMG state that: “Many of the principles and analytic frameworks used to assess horizontal mergers apply to vertical mergers. For example, Section 1 of the Horizontal Merger Guidelines—describing in general terms the purposes and limitations of the Horizontal Merger Guidelines and the goals of merger enforcement—is also relevant to the consideration of vertical mergers. Other topics addressed in the Horizontal Merger Guidelines, but not addressed herein—such as the analytic framework for evaluating entry considerations, the treatment of the acquisition of a failing firm or its assets, and the acquisition of a partial ownership interest—are relevant to the evaluation of the competitive effects of vertical mergers as well.”

  16. See also Brennan (2020) on this issue.

  17. Sunoco did not have a refinery in Quebec and wanted to concentrate its retail activities in Ontario.

  18. Brennan (2020) makes the general point that parties should be able to achieve many of the benefits of vertical merger via contract, and so vertical merger analysis should focus on why the behavior and theory of harm require a merger. Our statement about exclusive dealing is a specific version of that more general point.

  19. See for example Koch et al. (2017) and Capps et al. (2018).

  20. For example, Goolsbee (2007), Baker et al. (2014), and several earlier studies that are mentioned in Lafontaine and Slade (2007, Table 16).

  21. These include, for example, Baker et al. (2011), Chiou (2017), Boehm and Sontag (2019) and Cutler et al. (2020), as well as several studies in Lafontaine and Slade (2007, Table 15).

  22. As mentioned earlier, we also exclude hypothetical simulation exercises (e.g. Crawford et al. 2018; Cuesta et al. 2019).

  23. For example, Luco and Marshall (2020) find that the average soft-drink price increased, which is bad. However, that increase is not statistically significant, which is our reason for classifying the acquisition as having a neutral effect. In addition, although Hortaçsu and Syverson (2007) find that vertical integration is good, they show that changes in vertical integration—mergers—have little effect.

  24. There is an earlier literature on divorcement that examines effects of forced divestiture of company owned gasoline service stations. That literature—which is not included in Table 1, but is summarized in Table 17 of Lafontaine and Slade (2007)—concludes that the required disintegration was a bad idea: They are all + studies.

  25. “Enforcement dormancy” means that mergers are not deterred as much as they should be, so that the endogenous selection bias that one might worry about when examining retrospective studies as a group becomes less of a concern. This critique of retrospective studies is well articulated by Salop and Culley (2016) in footnote 34: “Studies that examine behavior in settings where anticompetitive conduct would have been deterred by the antitrust laws create a sample is [sic] biased towards finding no harm. Thus, they cannot provide reliable information about how [sic] the likely effects of the practices if the laws were relaxed to permit these practices by firms better situated to cause competitive harm.” Our point, however, is that this bias is less of a concern when enforcement is lax.


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We would like to thank Marissa Beck, Griet Jans, Guillermo Marshall, Nathan Wilson, as well as participants in the Pros and Cons of Presumptions 2020 research seminar at the Swedish Competition Authority and the 2020 Southern Economic Association session on vertical mergers, and participants at the Dyson Strategy Virtual seminar at Cornell University, for their thoughtful comments. We also thank the editor of this special issue for organizing and managing the creation of this issue, and the general editor for his thorough review and comments on the paper.

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Correspondence to Francine Lafontaine.

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Lafontaine, F., Slade, M.E. Presumptions in Vertical Mergers: The Role of Evidence. Rev Ind Organ 59, 255–272 (2021).

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  • Legal presumptions
  • Evidence
  • Merger retrospectives

JEL Classification

  • K21
  • L38
  • L40