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Merger Guidelines

U.S. Department of Justice and the Federal Trade Commission

Overview

These Merger Guidelines explain how the Department of Justice and the Federal Trade

Commission (the “Agencies”) identify potentially illegal mergers. They are designed to help the

public, business community, practitioners, and courts understand the factors and frameworks the

Agencies consider when investigating mergers.

The Agencies enforce the federal antitrust laws, specifically Sections 1 and 2 of the

Sherman Act, 15 U.S.C. §§ 1, 2; Section 5 of the Federal Trade Commission Act, 15 U.S.C.

§ 45; and Sections 3, 7, and 8 of the Clayton Act1, 15 U.S.C. §§ 14, 18, 19. Congress has charged

the Agencies with administering these statutes as part of a national policy to promote open and

fair competition, including by preventing mergers and acquisitions that would violate these laws.

Section 7 of the Clayton Act is the antitrust law that most directly addresses mergers and

acquisitions.2 Section 7 prohibits mergers and acquisitions where “in any line of commerce or in

any activity affecting commerce in any section of the country, the effect of such acquisition may

be substantially to lessen competition, or to tend to create a monopoly.”3 Section 7 is a

preventative statute that reflects the “mandate of Congress that tendencies toward concentration

As amended under the Celler-Kefauver Antimerger Act of 1950, Public Law 81-899, 64 Stat. 1125, and the HartScott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a.

Mergers may also violate, inter alia, Sections 1 and 2 of the Sherman Act or Section 5 of the FTC Act.

15 U.S.C. § 18.

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in industry are to be curbed in their incipiency.”4

The Clayton Act requires the Agencies to assess the risk to competition from mergers. As

the Supreme Court has explained, “Section 7 itself creates a relatively expansive definition of

antitrust liability: To show that a merger is unlawful, a plaintiff need only prove that its effect

‘may be substantially to lessen competition.’”5 This is because “[t]he grand design of…Section

7, as to stock acquisitions [and] the acquisition of assets, was to arrest incipient threats to

competition which the [more broadly applicable] Sherman Act did not ordinarily reach.”6

Accordingly, in analyzing a proposed merger, the Agencies do not seek to predict the future or

the precise effects of a merger with certainty. Rather, the Agencies assess the risk that the merger

may lessen competition substantially or tend to create a monopoly based on the totality of the

evidence available at the time of the investigation.

Across the economy, competition plays out in many ways and on a variety of dimensions.

In recognition of this fact, “Congress indicated plainly that a merger had to be functionally

viewed, in the context of its particular industry.”7 The Agencies therefore begin their merger

analysis with the question: how does competition present itself in this market and might this

merger risk lessening that competition substantially now or in the future?

The Agencies apply the following Guidelines to help answer this question. In some cases,

“it is possible…to simplify the test of illegality” by focusing on discrete facts that, when present,

suggest a merger is “so inherently likely to lessen competition substantially that it must be

enjoined in the absence of evidence clearly showing that the merger is not likely to have such

anticompetitive effects.”8

Guidelines 1-8 identify several frameworks that the Agencies use to assess the risk that a

merger’s effect may be substantially to lessen competition or to tend to create a monopoly.

Guidelines 9-12 explain issues that often arise when the Agencies apply those frameworks in

several common settings. Guideline 13 explains how the Agencies consider mergers and

acquisitions that raise competitive concerns not addressed by the other Guidelines.

These Guidelines are not mutually exclusive, as a single transaction can have multiple

effects or trigger concern in multiple ways. To promote efficient review, for any given

transaction the Agencies may limit their analysis to any one Guideline or subset of Guidelines

that most readily demonstrates the risks to competition from the transaction.

Brown Shoe Co. v. United States, 370 U.S. 294, 346 (1962) (“Brown Shoe”).

California v. Am. Stores Co., 495 U.S. 271, 284 (1990) (quoting 15 U.S.C. § 18 with emphasis) (citing Brown

Shoe, 370 U.S. at 323).

United States v. Penn-Olin Chemical Co., 378 U.S. 158, 170-71 (1964).

United States v. Gen. Dynamics Corp., 415 U.S. 486, 498 (1974) (quoting Brown Shoe, 370 U.S. at 321-22) (“Gen.

Dynamics”).

United States v. Phila. Nat’l Bank, 374 U.S. 321, 362-63 (1963) (Phila. Nat’l Bank).

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Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly

Concentrated Markets.9 Concentration refers to the number and relative size of rivals

competing to offer a product or service to a group of customers. The Agencies examine whether

a merger between competitors would significantly increase concentration and result in a highly

concentrated market. If so, the Agencies presume that a merger may substantially lessen

competition based on market structure alone.

Guideline 2: Mergers Should Not Eliminate Substantial Competition between Firms.10 The

Agencies examine whether competition between the merging parties is substantial, since their

merger will necessarily eliminate competition between them.

Guideline 3: Mergers Should Not Increase the Risk of Coordination.11 The Agencies

examine whether a merger increases the risk of anticompetitive coordination. A market that is

highly concentrated or has seen prior anticompetitive coordination is inherently vulnerable and

the Agencies will presume that the merger may substantially lessen competition. In a market that

is not yet highly concentrated, the Agencies investigate whether facts suggest a greater risk of

coordination than market structure alone would suggest.

Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated

Market.12 The Agencies examine whether, in a concentrated market, a merger would (a)

eliminate a potential entrant or (b) eliminate current competitive pressure from a perceived

potential entrant.

Guideline 5: Mergers Should Not Substantially Lessen Competition by Creating a Firm

That Controls Products or Services That Its Rivals May Use to Compete.13 When a merger

involves products or services rivals use to compete, the Agencies examine whether the merged

firm can control access to those products or services to substantially lessen competition and

whether they have the incentive to do so.

Guideline 6: Vertical Mergers Should Not Create Market Structures That Foreclose

Competition.14 The Agencies examine how a merger would restructure a vertical supply or

distribution chain. At or near a 50% share, market structure alone indicates the merger may

substantially lessen competition. Below that level, the Agencies examine whether the merger

would create a “clog on competition…which deprives rivals of a fair opportunity to compete.”15

Guideline 7: Mergers Should Not Entrench or Extend a Dominant Position.16 The Agencies

examine whether one of the merging firms already has a dominant position that the merger may

reinforce. They also examine whether the merger may extend that dominant position to

substantially lessen competition or tend to create a monopoly in another market.

See, e.g., Phila. Nat’l Bank, 374 U.S. at 363, modified by Gen. Dynamics, 415 U.S. at 498 (see Section IV).

See, e.g., ProMedica Health System, Inc. v. FTC, 749 F.3d 559, 568-70 (6th Cir. 2014), cert. denied, 575 U.S. 996

(2015).

See, e.g., Hospital Corp. of America v. FTC, 807 F.2d 1381, 1387-89 (7th Cir. 1986) (Posner, J.).

See, e.g., United States v. Marine Bancorp., 418 U.S. 602, 623-26 (1974).

See United States v. AT&T, 916 F.3d 1029, 1035-36 (D.C. Cir. 2019).

See, e.g., Ford Motor Co. v. United States, 405 U.S. 562 (1972).

Brown Shoe, 370 U.S. at 324.

See, e.g., FTC v. Procter & Gamble Co., 386 U.S. 568, 577-78 (1967).

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Guideline 8: Mergers Should Not Further a Trend Toward Concentration.17 If a merger

occurs during a trend toward concentration, the Agencies examine whether further consolidation

may substantially lessen competition or tend to create a monopoly.

Guideline 9: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May

Examine the Whole Series.18 If an individual transaction is part of a firm’s pattern or strategy of

multiple acquisitions, the Agencies consider the cumulative effect of the pattern or strategy.

Guideline 10: When a Merger Involves a Multi-Sided Platform, the Agencies Examine

Competition Between Platforms, on a Platform, or to Displace a Platform. Multi-sided

platforms have characteristics that can exacerbate or accelerate competition problems. The

Agencies consider the distinctive characteristics of multi-sided platforms carefully when

applying the other Guidelines.

Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether

It May Substantially Lessen Competition for Workers or Other Sellers.19 Section 7 protects

competition among buyers and prohibits mergers that may substantially lessen competition in

any relevant market. The Agencies therefore apply these Guidelines to assess whether a merger

between buyers, including employers, may substantially lessen competition or tend to create a

monopoly.

Guideline 12: When an Acquisition Involves Partial Ownership or Minority Interests, the

Agencies Examine Its Impact on Competition.20 Acquisitions of partial control or common

ownership may in some situations substantially lessen competition.

Guideline 13: Mergers Should Not Otherwise Substantially Lessen Competition or Tend to

Create a Monopoly. The Guidelines are not exhaustive of the ways that a merger may

substantially lessen competition or tend to create a monopoly.

These Guidelines consolidate, revise, and replace the various versions of Merger

Guidelines issued by the Agencies since the Department of Justice’s first Merger Guidelines in

1968. This revision builds on the learning and experience reflected in those prior Guidelines and

successive revisions. These Guidelines reflect the collected experience of the Agencies over

many years of merger review in a changing economy.

See, e.g., Gen. Dynamics, 415 U.S. at 497-98; United States v. Pabst Brewing Co., 384 U.S. 546, 552–53 (1966).

See H.R. Rep. No. 1191, 81st Cong., 2d Sess. 12-13 (1950).

See, e.g., Mandeville Island Farms v. Am. Crystal Sugar Co., 334 U.S. 219, 235 (1948).

See, e.g., Denver & Rio Grande v. United States, 387 U.S. 485, 504 (1967).

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To make their content both accessible to new readers and useful for experts, these

Guidelines are organized at varying levels of detail:



The Overview outlines the guidelines in summary form to help the public and market

participants identify potential concerns and understand the Agencies’ approach.

Section II discusses the application of these Guidelines in further detail.

Section III identifies some of the tools the Agencies use to define relevant markets; and

Section IV explains how the Agencies approach several common types of rebuttal

evidence.21

Several appendices follow these Guidelines. The Appendices describe evidentiary and analytical

tools the Agencies often use.



Appendix 1 discusses sources of evidence commonly relied on by the Agencies.

Appendix 2 describes tools sometimes used to evaluate competition among firms.

Appendix 3 discusses additional details regarding the process for defining relevant

markets.

Appendix 4 explains how the Agencies typically calculate market shares and

concentration metrics.

These Guidelines create no independent rights or obligations and do not limit the

discretion of the Agencies or their staff in any way. Although the Guidelines identify the factors

and frameworks the Agencies consider when investigating mergers, the Agencies’ enforcement

decisions will necessarily continue to require prosecutorial discretion and judgment. Because the

specific standards set forth in these Guidelines must be applied to a broad range of factual

circumstances, the Agencies will apply them reasonably and flexibly to the specific facts and

circumstances of each merger.

Similarly, the factors contemplated in these Guidelines neither dictate nor exhaust the

range of evidence that the Agencies may introduce in merger litigation. Instead, they set forth

various methods of analysis that may be applicable depending on the availability and/or

reliability of information related to a given market or transaction. Given the variety of markets,

market participants, and acquisitions that the Agencies encounter, merger analysis does not

consist of uniform application of a single methodology. The Agencies assess any relevant and

meaningful evidence to evaluate whether the effect of a merger may be substantially to lessen

competition or to tend to create a monopoly. Merger review is ultimately a fact-specific exercise.

The Agencies follow the facts in analyzing mergers, as they do in other areas of law

enforcement.

These Guidelines include citations to binding legal precedent. Citations to court decisions

in these Guidelines do not necessarily suggest that the Agencies would analyze the facts in those

cases identically today. While the Agencies adapt their analytical tools to new learning, legal

These Guidelines pertain only to the consideration of whether a merger or acquisition is illegal. The consideration

of remedies appropriate for otherwise illegal mergers and acquisitions is beyond its scope. The Agencies review

proposals to revise a merger in order to alleviate competitive concerns consistent with applicable law regarding

remedies.

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holdings reflecting the Supreme Court’s interpretation of a statute apply unless subsequently

modified. These Guidelines therefore cite binding propositions of law to explain core principles

that the Agencies apply in a manner consistent with modern analytical tools and market realities.

II.

Applying the Merger Guidelines

1. Mergers Should Not Significantly Increase Concentration in Highly

Concentrated Markets.

In highly concentrated markets, a merger that eliminates even a relatively small

competitor creates undue risk that the merger may substantially lessen competition. As a result,

even a relatively small increase in concentration in a relevant market can provide a basis to

presume that a merger is likely to substantially lessen competition. The Supreme Court has held

that “[a] merger which produces a firm controlling an undue percentage share of the relevant

market, and results in a significant increase in the concentration of firms in that market, is so

inherently likely to lessen competition substantially that it must be enjoined in the absence of

evidence clearly showing that the merger is not likely to have such anticompetitive effects.”22 In

the Agencies’ experience, this type of structural presumption provides a highly administrable and

useful tool for identifying mergers that may substantially lessen competition.

“Concentration” reflects the number and relative size of firms competing to offer a

product23 or service to a group of customers.24 Concentration is “high” when the market only has

a few significant competitors. An analysis of concentration begins with calculating pre-merger

market shares within a relevant market (see Section III and Appendix 4), then proceeds to assess

whether the merger would lead to or increase undue concentration in that market.25

The Agencies generally measure concentration levels using the Herfindahl-Hirschman

Index (“HHI”). The HHI is defined as the sum of the squares of the market shares; it is small

when there are many small firms and grows larger as the market becomes more concentrated,

reaching 10,000 in a market with a single firm. Markets with post-merger HHI greater than 1,800

are highly concentrated.26 A merger causes undue concentration and triggers a structural

presumption that the merger may substantially lessen competition or tend to create a monopoly

when it would result in a highly concentrated market and produce an increase in the HHI of more

Phila. Nat’l Bank, 374 U.S. at 363 (1963).

These Guidelines use the term “products” to encompass anything that is traded between firms and their suppliers,

customers, or business partners, including physical goods, services, or access to assets. Products can be as narrow as

an individual brand, a specific version of a product, or a product that includes specific ancillary services such as the

right to return it without cause, or delivery to the customer’s location.

In the context of buyers, concentration reflects the number and relative size of firms competing to purchase a

product or service.

Typically, a merger eliminates a competitor by bringing two market participants under common control. Similar

concerns arise if the merger threatens to cause the exit of a current market participant, such as a leveraged buyout

that puts the target firm at significant risk of failure.

For illustration, the HHI for a market of five equal firms is 2,000 (5 x 202 = 2,000), and for six equal firms is

1,667 (6 x 16.672 = 1667). Markets with HHI between 1,000 and 1,800 are referred to as “concentrated markets.”

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Focusing on the competition between the merging parties can reveal that a merger between

competitors may substantially lessen competition even where market shares are difficult to

measure or where market shares understate the competitive significance of the merging parties to

one another.

Competition often involves firms trying to win business by offering lower prices, new or

better products and services, more attractive features, higher wages, improved benefits, or better

terms relating to various additional dimensions of competition. The more the merging parties

have shaped one another’s behavior, or have affected one another’s sales, profits, valuation, or

other drivers of behavior, the more significant the competition between them.

The Agencies examine a variety of indicators to identify substantial competition. For

example:

Strategic Deliberations or Decisions. The Agencies may analyze the extent of

competition between the merging firms by examining evidence relating to strategic deliberations

or decisions in the regular course of business. For example, in some markets, the firms may

monitor each other’s pricing, marketing campaigns, facility locations, improvements, products,

capacity, output, and/or innovation plans. This can provide evidence of competition between the

merging firms, especially when they react by taking steps to preserve or enhance the

competitiveness or profitability of their own products or services.

Prior Merger, Entry, and Exit Events. The Agencies may look to historical events to

assess the presence and substantiality of direct competition between the merging firms. For

example, the Agencies may examine the impact of recent relevant mergers, entry, expansion, or

exit events.

Customer Substitution. Customers’ willingness to switch between different firms’

products is an important part of the competitive process. Firms are closer competitors the more

that customers are willing to switch between their products. The Agencies use a variety of tools,

detailed in Appendix 2, to assess customer substitution.

Impact of Competitive Actions on Rivals. Competitive actions by one firm can increase

its sales at the expense of its rivals. The Agencies may gauge the extent of competition between

the merging firms by considering the impact that competitive actions by one of the merging

firms has on the other merging firm. The impact of a firm’s competitive actions on a rival is

generally greater when customers consider their products to be closer substitutes, so that a firm’s

competitive actions result in greater lost sales for the rival, and when the profitability of the

rival’s lost sales is greater.

Impact of Eliminating Competition Between the Firms. In some instances, evidence

may be available to assess the impact of competition from one firm on the other’s actions, such

competition [is] not insubstantial and that the combination [would] put an end to it.”); ProMedica Health System,

Inc. v. FTC, 749 F.3d 559, 568-70 (6th Cir. 2014), cert. denied, 575 U.S. 996 (2015). The effect on competition of

the elimination of competition between the merging firms, without considering the risk of coordination among the

remaining firms, is sometimes referred to as “horizontal unilateral effects.”

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as firm choices about price, quality, wages, or another dimension of competition. Appendix 2

describes a variety of approaches to measuring such impacts.

Additional Evidence, Tools, and Metrics. The Agencies may use additional evidence,

tools, and metrics to assess the loss of competition between the firms. Depending on the realities

of the market, different evidence, tools, or metrics may be appropriate. Appendix 2 provides

examples and detail on several tools and settings.

3. Mergers Should Not Increase the Risk of Coordination.

The Agencies determine that a merger may substantially lessen competition when it

meaningfully increases the risk of coordination among the remaining firms in a relevant market

or makes existing coordination more stable or effective.31 Firms can coordinate across any or all

dimensions of competition, such as price, product features, customers, wages, benefits, or

geography. Coordination among rivals lessens competition whether it occurs explicitly—through

collusive agreements between competitors not to compete or to compete less—or tacitly, through

observation and response to rivals. Because tacit coordination may be difficult to address under

Section 1 of the Sherman Act, vigorous enforcement of Section 7 of the Clayton Act to prevent

market structures conducive to such coordination is especially critical.

To assess the extent to which a merger may increase the likelihood, stability, or

effectiveness of coordination, the Agencies often consider three primary factors and several

secondary factors. The Agencies may consider additional factors depending on the market.

A. Primary Factors

The Agencies presume that post-merger market conditions are susceptible to coordinated

interaction if any of the three primary factors are present.

Highly Concentrated Market. By reducing the number of firms in a market, a merger

increases the risk of coordination. The fewer the number of competitively meaningful rivals prior

to the merger, the greater the likelihood that merging two competitors will facilitate

coordination. Markets that are highly concentrated after a merger that significantly increases

concentration (see Guideline 1) are presumptively susceptible to coordination. If merging parties

claim that a highly concentrated market is not susceptible to coordination, the Agencies will

assess this evidence using the framework described in Section IV.4. Where a market is not

highly concentrated, the Agencies may still consider other risk factors.

Prior Actual or Attempted Attempts to Coordinate. Evidence that firms representing a

substantial share in the relevant market appear to have previously engaged in express or tacit

coordination to lessen competition is highly informative as to the market’s susceptibility to

coordination. Evidence of failed attempts at coordination in the relevant market suggest that

successful coordination was not so difficult as to deter attempts, and a merger reducing the

number of rivals may tend to make success more likely.

See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 229-30 (1993) (“In the § 7 context, it

has long been settled that excessive concentration, and the oligopolistic price coordination it portends, may be the

injury to competition the Act prohibits.”).

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Elimination of a Maverick. A maverick is a firm with a disruptive presence in a market.

The presence of a maverick only reduces the risk of coordination so long as the maverick retains

the disruptive incentives that drive its behavior. A merger that eliminates a maverick or

significantly changes its incentives increases the susceptibility to coordination.32

B. Secondary Factors

The Agencies also examine whether secondary factors demonstrate that a merger may

meaningfully increase the risk of coordination, even absent the primary risk factors. Not all

secondary factors must be present for a market to be susceptible to coordination.

Market Concentration. Even in markets that are not highly concentrated, coordination

becomes more likely as concentration increases. The more concentrated a market with an HHI

above 1,000, the more likely the Agencies are to conclude that the market structure suggests

susceptibility to coordination.

Market Transparency. A market is more susceptible to coordination if a firm’s behavior

can be promptly and easily observed by its rivals. Rivals’ behavior is more easily observed when

the terms offered to customers are readily discernible and relatively transparent (that is, known to

rivals). Transparency can refer to the ability to observe prices, terms, the identities of the firms

serving particular customers, or any other competitive actions of other firms. Information sharing

arrangements among market participants, such as public exchange of information through

announcements or private exchanges through trade associations or publications, increase market

transparency. Regular monitoring of one another’s prices or customers can indicate that the terms

offered to customers are relatively transparent. Use of algorithms or artificial intelligence to track

or predict competitor prices or actions likewise increases the transparency of the market.

Competitive Responses. A market is more susceptible to coordination if a firm’s

prospective competitive reward from attracting customers away from its rivals will be

significantly diminished by likely responses of those rivals. This is more likely to be the case the

stronger and faster the responses from its rivals because such responses reduce the benefits of

competing more aggressively. Some factors that increase the likelihood of strong or rapid

responses by rivals include: (1) the market has few significant competitors, (2) products in the

relevant market are relatively homogeneous, (3) customers find it relatively easy to switch

between suppliers, (4) suppliers use algorithmic pricing, or (5) suppliers use meetingcompetition clauses.

Aligned Incentives. Removing a firm that has different incentives from most others in a

market can increase the risk of coordination. For example, a firm with a small market share may

have less incentive to coordinate because it has more potential to gain from winning new

business than do other firms. The same issue can arise when a merger more closely aligns one or

both merging firms’ incentives with the other firms in the market.

Profitability or Other Advantages of Coordination for Rivals. The Agencies regard

coordinated interaction as more likely to occur when participants in the market stand to gain

more from successful coordination. Coordination generally is more profitable or otherwise

United States v. Alcoa, 377 U.S. 271, 280-81 (1964).

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advantageous for the coordinating firms the less often customers substitute outside the market

when firms offer worse terms.

4. Mergers Should Not Eliminate a Potential Entrant in a Concentrated

Market.

Mergers can substantially lessen competition by eliminating a potential entrant. For

instance, a merger can eliminate the possibility that entry or expansion by one or both firms

would have resulted in new or increased competition in the market in the future. A merger can

also eliminate current competitive pressure exerted on other market participants by the mere

perception that one of the firms might enter. Both of these risks can be present simultaneously.

A merger that eliminates a potential entrant into a concentrated market can substantially

lessen competition or tend to create a monopoly.33 The more concentrated the market, the greater

the magnitude of harm to competition from any lost potential entry and the greater the tendency

to create a monopoly. Accordingly, for mergers involving one or more potential entrants, the

higher the market concentration, the lower the probability of entry that gives rise to concern.

A. Actual Potential Competition: Eliminating Reasonably Probable Future

Entry

The antitrust laws reflect a preference for internal growth over acquisition.34 In contrast

to internal growth, merging a current and a potential market participant eliminates the possibility

that the potential entrant would have entered on its own.35

To determine whether an acquisition that eliminates a potential entrant into a

concentrated market may substantially lessen competition,36 the Agencies examine (1) whether

one or both of the merging firms had a reasonable probability of entering the relevant market

other than through an anticompetitive merger, and (2) whether such entry offered “a substantial

likelihood of ultimately producing deconcentration of [the] market or other significant

procompetitive effects.”37

Reasonable Probability of Alternative Entry. The Agencies’ starting point for

assessment of a reasonable probability of entry is objective evidence regarding the firm’s

available feasible means of entry, including its capabilities and incentives. Relevant objective

evidence can include, for example, evidence that the firm has sufficient size and resources to

enter; evidence of any advantages that would make the firm well-situated to enter; evidence that

United States v. Marine Bancorp., 418 U.S. 602, 630 (1974). A concentrated market is one with an HHI greater

than 1,000 (See Guideline 1).

United States v. Falstaff Brewing Corp., 410 U.S. 526, 559 n.13 (1973) (Marshall, J., concurring) (“[S]urely one

premise of an antimerger statute such as § 7 is that corporate growth by internal expansion is socially preferable to

growth by acquisition.” (quoting Phila. Nat’l Bank, 374 U.S. at 370)).

See, e.g., United States v. Falstaff Brewing Corp., 410 U.S. 526, 560–61 (1973) (Marshall, J., concurring).

Harm from the elimination of a potential entrant can occur in markets that do not yet consist of commercial

products, even if the market concentration of the future market cannot be measured using traditional means. Where

there are few equivalent potential entrants including one or both of the merging firms, that indicates that the future

market, once commercialized, will be concentrated. The Agencies will consider other potential entrants’ capabilities

and incentives in comparison to the merging potential entrant to assess equivalence.

United States v. Marine Bancorp., 418 U.S. 602, 633 (1974).

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the firm has successfully expanded into other markets in the past or already participates in

adjacent or related markets; evidence that the firm has an incentive to enter; or evidence that

industry participants recognize the company as a potential entrant.38 This analysis is not limited

to whether the company could enter with its pre-merger production facilities, but also considers

overall capability, which can include the ability to expand or add to its capabilities on its own or

in collaboration with someone other than the acquisition target.

Subjective evidence that the company considered entering absent the merger can also

indicate a reasonable probability that the company would have entered without the merger.39

Subjective evidence that the company considered organic entry as an alternative to merging

generally suggests that, absent the merger, entry would be reasonably probable.

Likelihood of Deconcentration or Other Significant Procompetitive Effects. New entry

can yield a variety of procompetitive effects, including market deconcentration, increased output

or investment, higher wages or improved working conditions, greater innovation, higher quality,

and lower prices.40 If the merging firm had a reasonable probability of entering the concentrated

relevant market, the Agencies will usually presume that the resulting deconcentration and other

benefits that would have resulted from its entry would be competitively significant, unless there

is substantial direct evidence that the competitive effect would be de minimis.41 To supplement

the presumption that new entry yields procompetitive effects, the Agencies will consider

projections of the potential entrant’s competitive significance, such as market share, its business

strategy, the anticipated response of competitors, or customer preferences or interest.

A merger of two potential entrants can also result in a substantial lessening of

competition. The merger need not involve a firm that has a commercialized product in the market

or an existing presence in the same geographic market. The Agencies analyze similarly mergers

between two potential entrants and those involving a current market participant and a potential

entrant.

B. Perceived Potential Competition: Lessening of Current Competitive Pressure

A perceived potential entrant can stimulate competition among incumbents. That pressure

can prompt current market participants to make investments, expand output, raise wages,

increase product quality, lower product prices, or take other procompetitive actions. The

acquisition of a firm that is perceived by market participants as a potential entrant can

substantially lessen competition by eliminating or relieving competitive pressure.42

As to all of these types of evidence, see Marine Bancorp., 418 U.S. at 636–37; Yamaha Motor Co. v. FTC, 657

F.2d 971, 978 (8th Cir. 1981).

Yamaha Motor Co., 657 F.2d at 978.

Brown Shoe Co., 370 U.S. at 345 n.72 (“Internal expansion is . . . more likely to provide increased investment . . .

more jobs and greater output.”).

For example, where state banking laws prohibit alternative de novo entry and dictate that alternative entry via

toehold acquisition “would be frozen at the level of its initial acquisition,” the Agencies would not presume such

alternative entry would yield deconcentration as a significant procompetitive effect. Marine Bancorp., Inc., 418 U.S.

602, 633-39 (1974).

This elimination of present competitive pressure is sometimes known as an anticompetitive “edge effect” or a loss

of “perceived potential competition.” E.g., Marine Bancorp., 418 U.S. at 639.

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To assess whether the acquisition of a perceived potential entrant may substantially

lessen competition, the Agencies consider whether a current market participant could reasonably

consider one of the merging companies to be a potential entrant and whether that potential

entrant has a likely influence on existing competition.

Market Participant Could Reasonably Consider a Firm to Be a Potential Entrant. The

starting point for this analysis is evidence regarding the company’s capability of entering or

applying competitive pressure.43 Objective evidence is highly probative and includes evidence of

feasible means of entry or communications by the company indicating plans to expand or

reallocate resources in a way that could increase competition in the relevant market. Objective

evidence can be sufficient to find that the firm is a potential entrant; it need not be accompanied

by any subjective evidence of current market participants’ internal perceptions or direct evidence

of strategic reactions to the potential entrant. If such evidence is available, it can weigh in favor

of finding that a current market participant could reasonably consider the firm to be a potential

entrant.

Likely Influence on Existing Rivals. Objective evidence establishing that a current

market participant could reasonably consider one of the merging firms to be a potential entrant

can also establish that the firm has a likely influence on existing market participants.44 Subjective

evidence indicating that current market participants, including for example customers, suppliers,

or distributors, internally perceive the merging firm to be a potential entrant can also establish a

likely influence. Direct evidence that the firm’s presence or behavior has affected or is affecting

current market participants’ strategic decisions can also establish a likely influence.45

Circumstantial evidence that the firm’s presence or behavior had a direct effect on the

competitive reactions of firms in the market may also show likely influence.46

The existence of a perceived potential entrant does not override or counteract harm from

mergers between companies that already participate in the relevant market. The impact of

perceived potential entrants is secondary to the competition provided by current market

participants. Accordingly, when evaluating a merger of current competitors, the Agencies will

assess whether firms are likely to enter the market to replace the lost competition using the

standards discussed in Section IV.2. Concentrated markets often lack robust competition, and so

the loss of even a secondary source of competition, like perceived potential entrants, may

substantially lessen competition.

United States v. Falstaff Brewing Corp., 410 U.S. 526, 533–36 (1973) (identifying “specific question” as

“whether, given [the acquirer’s] financial capabilities and conditions in the market, it would be reasonable to

consider it a potential entrant into that market”).

Falstaff Brewing Corp., 410 U.S. at 534.

FTC v. Procter & Gamble, 386 U.S. 568, 581 (1967) (relying on objective evidence that “barriers to entry . . .

were not significant” for the acquirer, that the number of potential entrants was “not so large that the elimination of

one would be insignificant,” and that “the acquiring firm was the most likely entrant,” in addition to direct evidence

of current edge effects on existing competitors’ behavior).

For instance, a market participant may have expressed concerns that certain competitive actions would hurt its

ability to compete against the potential entrant.

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5. Mergers Should Not Substantially Lessen Competition by Creating a

Firm That Controls Products or Services That Its Rivals May Use to

Compete.

The Agencies evaluate whether a merger may substantially lessen competition by giving

a firm control over access to a product, service, or customers that its rivals use to compete.

Control of rivals’ access to these tools of competition can enable the merged firm to weaken its

rivals and, in so doing, lessen competition or tend to create a monopoly.

This concern applies to any transaction involving access to products, services, or

customers rivals use to compete, whether or not they involve traditional vertical supply and

distributor relationships. The Agencies’ analysis focuses on the risk that the merged firm would

have the ability and incentive to make it harder for rivals to compete and thereby harm

competition.47

The relevant market for this analysis can be the market in which the merged firm

competes with its rivals, while the product, service, or customer that rivals use to compete in that

market is termed the “related product” or “related service.” Many types of related products or

services can implicate this concern, such as: (1) related products rivals may use, now or in the

future, as inputs; (2) related products that provide distribution services for rivals or otherwise

influence consumer purchase decisions, or the firm’s own purchases of intermediate products;

(3) related products that provide the merged firm access to competitively sensitive information

about its rivals; or (4) related products that are complementary to, and therefore increase the

value of, rivals’ products. Even if the related product or service is not currently being used by

rivals, it might be competitively significant because, for example, its availability enables rivals to

obtain better terms from other providers in negotiations.

A. The Ability and Incentive to Weaken or Exclude Rivals

A merger involving products, services, or customers that rivals use to compete may

substantially lessen competition when it results in a firm with both the ability and incentive to

make it harder for its rivals to compete in the relevant market, or to eliminate them or deter the

entry of new firms into the relevant market. Because the merged firm may have the ability to

control access to the related product in many different ways, the Agencies do not seek to specify

the precise actions the merged firm would take to weaken rivals.

(1) Ability

The Agencies assess the merged firm’s ability to make it harder for its rivals to compete

by examining (1) the extent to which the firm can limit or degrade its rivals’ access to a related

product, service, or customers, and (2) the extent to which the related product, service, or

customers affects those rivals’ competitiveness.

The inquiry in Guideline 6 into vertical market structures is distinct from this ability and incentive analysis.

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Ability to Limit Access. The Agencies assess whether the merged firm may be able to

limit or degrade rivals’ access to the related product or service by looking at the availability of

substitutes. In particular, the merged firm might be able to deny rivals access altogether or might

be able to worsen the terms on which rivals can access the related product or service. For

example, the merged firm might raise price, reduce quality, provide less reliable access, or delay

access to product improvements or information relevant to making efficient use of the product.

Competitive Significance of Limiting Rivals’ Access. The Agencies consider the

potential impact on competition from limiting or degrading rivals’ access to the related product

or service. This inquiry focuses on whether doing so would make it harder for rivals to compete

or raise barriers to entry by new firms and expansion by existing firms. For example, it would be

harder for rivals to compete if raising rivals’ costs as a result of the merger led rivals to charge

higher prices, made their products less attractive to customers, or meant those products were less

readily available to customers. The merged firm’s ability to exclude or weaken rivals is greater,

the worse are rivals’ alternative options to the merged firm’s related product or service.

(2) Incentive

The Agencies assess whether the merged firm may have an incentive to worsen the terms

on which rivals can access the related product and thereby benefit from substantially lessened

competition. This incentive discourages the merged firm from providing those rivals with access

to the related product or service. Evidence regarding the merged firm’s incentives can include

evidence about the structure, history, and probable future of the market.

Competition with Rivals That Use the Related Product or Service. The merged firm’s

incentives to worsen terms for the related product depend on the extent to which it competes with

rivals that use the related product. The merged firm may benefit from higher sales or prices in the

relevant market if they worsen terms for rivals. This benefit can make it profitable to worsen the

terms offered to rivals for the related product and thereby substantially lessen competition, even

though it would not have been profitable for the firm that controlled the related product prior to

the merger.

The Agencies may assess the extent of competition with rivals using analogous methods

to the ones used to assess the extent of competition between the merging firms (see Guideline 2

and Appendix 2). For example, the Agencies may consider evidence about the impact on the

merged firm of competitive actions by rivals that use the related product.

Prior Transactions or Prior Actions. If firms used prior acquisitions or engaged in prior

actions to limit rivals’ access to the related product, or other products its rivals use to compete,

that suggests that the merged firm has an incentive to lessen competition in the relevant market.

However, lack of past action does not necessarily indicate a lack of incentive in the present

transaction.

Internal Documents. Business planning and merger analysis documents prepared by the

merging firms might identify instances where the firms themselves believe they have incentives

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to raise rivals’ costs. Such documents, where available, are highly probative of an incentive to

raise rivals’ costs. The lack of such documents, however, is less informative.

If the merged firm has the ability and incentive to make it harder for its rivals to compete

in the relevant market, there are many ways it could act on those incentives. The merging parties

may put forward evidence that there are no plausible ways in which they could profitably worsen

the terms for the related product and thereby make it harder for rivals to compete, or that the

merged firm will be more competitive as a result of the merger. When evaluating whether this

rebuttal evidence is sufficient to conclude that no substantial lessening of competition is

threatened by the merger, the Agencies will give little weight to claims that are not supported by

an objective analysis, including, for example, speculative claims about reputational harms.

Moreover, the Agencies are unlikely to credit claims or commitments to protect or otherwise

avoid harming their rivals that do not align with the firm’s incentives.48 The Agencies’

assessment will be consistent with the principle that firms act to maximize their overall profits

and valuation rather than the profits of any particular business unit.49 A merger may substantially

lessen competition or tend to create a monopoly regardless of the claimed intent of the merging

companies or their executives.50 (See Section IV.)

B. Mergers Involving Access to Rivals’ Competitively Sensitive Information

If rivals would continue to access or purchase a related product controlled by the merged

firm post-merger, the merger may substantially lessen competition if the merger would grant the

firm access to rivals’ competitively sensitive information. This situation could arise in many

settings, including, for example, if the merged firm learns about rivals’ sales volumes or

projections from supplying an input or a complementary product; if it learns about promotion

plans and anticipated product improvements or innovations from its role as a distributor; or if it

learns about entry plans from discussions with potential rivals about compatibility with a

complementary product it controls. A merger that gives the merged firm access to competitively

sensitive information could undermine rivals’ ability or incentive to compete aggressively or

could facilitate coordination.

Undermining Competition. The merged firm might use access to a rival’s competitively

sensitive information to undermine competition from the rival. For example, the merged firm’s

ability to preempt, appropriate, or otherwise undermine the rival’s procompetitive actions can

discourage the rival from fully pursuing competitive opportunities. As a result, rivals might see

less value in taking procompetitive actions when a competitor has access to its competitively

See FTC v. H.J. Heinz Co., 246 F.3d 708, 721 (D.C. Cir. 2001).

Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 770–72 (1984); United States v. AT&T, Inc., 916 F.3d

1029, 1043 (D.C. Cir. 2019).

United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 607 (1957); see also Miss. River Corp. v. FTC,

454 F.2d 1083, 1089 (8th Cir. 1972) (“Honest intentions, business purposes and economic benefits are not a defense

to violations of an antimerger law.”).

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sensitive information. Relatedly, rivals might refrain from doing business with the merged firm

rather than risk that the merged firm would use their competitively sensitive business

information to undercut them. Those rivals might become less-effective competitors if they must

rely on less preferred trading partners or accept less favorable trading terms because their outside

options have worsened or are more limited.

Facilitating Coordination. A merger that provides access to rivals’ competitively

sensitive information might facilitate coordinated interaction among firms in the relevant market

by allowing the merged firm to observe its rivals’ competitive strategies faster and more

confidently. (See Guideline 3.)

6. Vertical Mergers Should Not Create Market Structures That

Foreclose Competition.

A merger is “vertical” when the merging firms operate different levels of the same supply

or distribution chain. Vertical integration occurs when the product or service supplied by the

“upstream” firm (e.g., an input supplier) will be used by the “downstream” firm (e.g., a

manufacturer of a finished product). “The primary vice of a vertical merger…is that, by

foreclosing the competitors of either party from a segment of the market otherwise open to them,

the arrangement may act as a clog on competition, which deprives rivals of a fair opportunity to

compete.”51 The Agencies therefore sometimes undertake a structural analysis of a supply chain

as a means of assessing whether a vertical merger may substantially lessen competition.52

A. Market Share Analysis

The risk of harm to competition is greater when unintegrated rivals have fewer substitutes

for the related product. The Agencies may define a “related market” around the related product

(see Guideline 5), using methodologies described in Section III. The “foreclosure share” is the

share of the related market that is controlled by the merged firm, such that it could foreclose

rival’s access to the related product on competitive terms. If the foreclosure share is above 50

percent, that factor alone is a sufficient basis to conclude that the effect of the merger may be to

substantially lessen competition, subject to any rebuttal evidence (see Section IV).53

B. Plus Factors Analysis

Below a foreclosure share of 50 percent, the Agencies consider a range of plus factors, in

addition to the foreclosure share, to determine whether a vertical merger is reasonably likely to

Brown Shoe, 380 U.S. at 323-24 (cleaned up). See Fruehauf Corp. v. FTC, 603 F.2d 345, 352 (2d Cir. 1979); U.S.

Steel Corp. v. FTC, 426 F.2d 592, 599 (6th Cir. 1970); United States v. Am. Cyanamid Co., 719 F.2d 558, 567 (2d

Cir. 1983).

In addition to this structural analysis, many vertical mergers can also be analyzed under the ability and incentive

analysis in Guideline 5. Either can be a sufficient basis to warrant concern.

Brown Shoe, 370 U.S. at 328 (“If the share of the market foreclosed is so large that it approaches monopoly

proportions, the Clayton Act will, of course, have been violated . . .”); Fruehauf Corp., 603 F.2d 345, 352, n.9 (2d

Cir. 1979) (“[N]o such Per se rule has been adopted, except where the share of the market foreclosed reaches

monopoly proportions,” and the roughly 50% foreclosure share in United States v. EI du Pont de Nemours & Co.,

353 U.S. 586 (1957) “left no doubt that the vertical tie conferred market power.”).

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restrict options along the supply chain, depriving rivals of a fair opportunity to compete. The

following is not an exhaustive list of all sources of potentially relevant evidence.

Trend Toward Vertical Integration. The Agencies will generally consider evidence

about the degree of integration between firms in the relevant and related markets and whether

there is a trend toward further vertical integration. The acceleration of a trend toward vertical

integration may be shown through, for example: a pattern of vertical integration following

mergers by one or both of the merging companies; or evidence that a merger was motivated by a

desire to secure supply or distribution in response to similar transactions among other

companies.54

Nature and Purpose of the Merger. When the nature and purpose of the merger is to

foreclose rivals, including by raising their costs, that suggests the merged firm is likely to

foreclose rivals.55

The Relevant Market is Already Concentrated. The risk to competition from restricted

supply chains is greater when the relevant market is already concentrated or when the merged

firm already has a dominant position in that market (see Guideline 7).

The Merger Increases Barriers to Entry. A vertical merger can raise barriers to entry by

limiting independent sources of supply so that a new entrant would need to invest not only in

entering the relevant market, but also in the related market, sometimes referred to as two-stage

entry.56

7. Mergers Should Not Entrench or Extend a Dominant Position.

In a market that is already concentrated, merger enforcement should seek to preserve the

possibility of eventual deconcentration.57 Accordingly, the Agencies evaluate whether a merger

involving an “already dominant[] firm may substantially reduce the competitive structure of the

industry.”58 The Agencies also evaluate whether the merger may extend that dominant position

into new markets, thereby substantially lessening competition in those markets.59 The effect of

entrenching or extending an already dominant position “may be substantially to lessen

competition” or it “may be…to tend to create a monopoly” in violation of Section 7 of the

United States Steel Corp. v. FTC, 426 F.2d 592 (6th Cir. 1970).

See Ford Motor Co., 405 U.S. at 571.

Marquette Cement Manufacturing, Co., 75 FTC 32, 44 (1969) (“The increased capital costs and the greater risks

that entry at both levels would entail substantially increased barriers to entry in this market . . .”).

Phila. Nat’l Bank, 374 U.S. at 365 n.42 (1963) (“[I]f concentration is already great, the importance of …

preserving the possibility of eventual deconcentration is correspondingly great.”).

FTC v. Procter & Gamble Co., 386 U.S. 568, 577-578 (1967); see, e.g., Allis-Chalmers Mfg. Co. v. White Consol.

Indus., Inc., 414 F.2d 506, 518 (3d Cir. 1969) (“The potential entrenchment of … market power… may be

anticompetitive and violative of § 7.”); Fruehauf Corp. v. FTC, 603 F.2d 345, 353 (2d Cir. 1979) (the “entrenchment

of a large supplier or purchaser” can be an “essential” showing of a Section 7 violation); United States v. FCC, 652

F.2d 72, 102 (D.C. Cir. 1980) (under “entrenchment theory” a merger may violate Section 7 when it would allow the

firm to “dominate the relevant market and to drive out actual or potential competitors”); Stanley Works v. FTC, 469

F.2d 498, 505 (2d Cir. 1972) (affirming order blocking a merger under Section 7 that would “entrench” an “already

dominant position”).

Ford Motor Co. v. United States, 405 U.S. 562, 571 (1972) (condemning acquisition by dominant firm to obtain a

foothold in another market when coupled with incentive to create and maintain barriers to entry into that market).

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Clayton Act.60 “Th[is] entrenchment doctrine properly blocks artificial competitive advantages

… but not simple improvements in efficiency.”61

These concerns can arise in mergers that are neither strictly horizontal nor vertical, so the

Agencies seek to identify any connection suggesting the merger may entrench or extend the

dominant position.

To evaluate this concern, the Agencies consider whether (a) one of the merged firms

already has a dominant position, and (b) the merger may entrench or extend that position. The

Agencies assess the magnitude of the lessening of competition that may arise from entrenching a

dominant position based on the degree of dominance already held and the extent to which it

would be entrenched by a merger. The greater the dominance already held, the lower the degree

of entrenchment that gives rise to a substantial lessening of competition. When one merging firm

has or is approaching monopoly power, any acquisition that may tend to preserve its dominant

position may tend to create a monopoly in violation of Section 7.

To identify whether one of the merging firms already has a dominant position,62 the

agencies look to whether (i) there is direct evidence that one or both merging firms has the power

to raise price, reduce quality, or otherwise impose or obtain terms that they could not obtain butfor that dominance, or (ii) one of the merging firms possesses at least 30 percent market share.

If this inquiry reveals that at least one of the merging firms already has a dominant

position, the Agencies then examine whether the merger would either entrench that position or

extend it into additional markets.

Entrenching a Dominant Position. The Agencies examine whether the merger may

entrench the dominant position through any mechanism consistent with market realities that

lessens the competitive threats the merged firm faces. For example:

A. Increasing Entry Barriers Generally. Entry barriers protect an incumbent firm from

competition by making it more difficult for firms to enter the market or for existing

firms to expand. Entry barriers can include, for example, the time, money, and

expertise needed to develop a competing product; the risk that such entry would fail

to recover the required investment; the costs to customers of switching providers;

A merger that entrenches or extends a firm’s dominant position may also violate Section 1 or Section 2 of the

Sherman Act. See, e.g., United States v. Grinnell Corp., 384 U.S. 563 (1966) (acquisitions among the types of

conduct that may violate the Sherman Act). The various provisions of the Sherman, Clayton, and FTC acts each

have separate standards, and one may be violated when the others are not.

See Emhart Corp. v. USM Corp., 527 F.2d 177, 182 (1st Cir. 1975).

Cases use various terms to describe a firm with an already powerful position in a market. See, e.g., FTC v. Procter

& Gamble Co., 386 U.S. 568, 575 (1967) (“dominant position”); id. at 571 (“leading manufacturer”); United States

v. Aluminum Co. of Am., 377 U.S. 271, 278 (1964) (“leading producer”); Allis-Chalmers Mfg. Co. v. White Consol.

Indus., Inc., 414 F.2d 506, 524 (3d Cir. 1969) (“leading firm”); Fruehauf Corp. v. FTC, 603 F.2d 345, 353 (2d Cir.

1979) (“large supplier”); United States v. FCC, 652 F.2d 72, 103 (D.C. Cir. 1980) (“dominant firms”); id. (“leading .

. . firm”); Stanley Works v. FTC, 469 F.2d 498, 505 (2d Cir. 1972) (“dominant position”); Mo. Portland Cement Co.

v. Cargill, Inc., 498 F.2d 851, 866 (2d Cir. 1974) (“dominant firm”). Concern with entrenching or extending a

powerful position, however, does not depend on the precise term, and arises whether the firm has market power or

monopoly power. These Guidelines therefore use the term “dominant position” to refer to the position of those firms

for which antitrust law is concerned about extending or entrenching power through a merger.

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existing regulatory barriers; the control over necessary inputs by a current market

participant; scale economies; network effects; entrenched preferences for established

brands; or control of patents. A merger that increases barriers to entry, including by

requiring rivals to incur additional entry costs, can entrench a dominant position.63

Several specific entry barriers are discussed below in B-D.

B. Increasing Switching Costs. The costs associated with changing suppliers (often

referred to as switching costs) are an important barrier to entry that can entrench a

dominant position. A merger may increase switching costs if it makes it more difficult

for customers to switch away from the dominant firm’s product or service, such as by

enabling the bundling of multiple products or services together. A merger may also

increase switching costs if it gives the dominant firm control of something customers

use to switch providers, such as a data transfer service.

C. Interfering With Use of Competitive Alternatives. A dominant position may be

threatened by a service that customers use to work with multiple providers of similar

or overlapping bundles of products and services. If an already dominant firm acquires

a firm that provides a service that supports the use of multiple providers, it may have

an incentive to degrade the utility or availability of that service, or to modify the

service to steer customers to its own products, entrenching its dominant position.

D. Depriving Rivals of Scale Economies or Network Effects. Scale economies and

network effects can serve as a barrier to entry. Depriving rivals of access to scale

economies and network effects can therefore entrench a dominant position. If an

already dominant firm acquires by merger additional scale or customers such that

they are not available to would-be rivals, the merger can limit the ability of rivals to

improve their own products and compete more effectively.

E. Eliminating a nascent competitive threat. A nascent threat to a dominant firm is a

firm that could grow into a significant rival, facilitate other rivals’ growth, or

otherwise lead to a reduction in dominance. In assessing a merger that eliminates a

nascent threat, the Agencies examine the merger’s tendency to create a monopoly

under Section 7 of the Clayton Act.

In addition to these examples, the Agencies will assess whether the merger entrenches a

dominant position in any other way based on the market realities specific to the merger.

At times, high entry barriers can become temporarily less effective in protecting a firm’s

dominance. For example, technological transitions can render existing entry barriers less

relevant, and a dominant firm might seek to acquire firms to help it reinforce or recreate those

entry barriers so that its dominance endures past the technological transition. Further,

technological transitions can create temporary opportunities for entrants to differentiate based on

their alignment with new technologies. A dominant firm might seek to acquire firms that might

FTC v. Procter & Gamble Co., 386 U.S. 568, 578 (1967) (a merger “may substantially reduce the competitive

structure of the industry by raising entry barriers and by dissuading the smaller firms from aggressively

competing”).

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otherwise gain sufficient customers to overcome entry barriers. The Agencies take particular care

to preserve opportunities for deconcentration during technological shifts.

Separate from and in addition to its Section 7 analysis, the Agencies will consider

whether the merger violates Section 2 of the Sherman Act. For example, under Section 2 of the

Sherman Act, a firm that may challenge a monopolist may be characterized as a “nascent threat”

even if the impending threat is uncertain and may take several years to materialize.64 The

Agencies assess whether the merger is reasonably capable of contributing significantly to the

preservation of monopoly power in violation of Section 2, which turns on whether the acquired

firm is a nascent competitive threat.65

Extending a Dominant Position into a Related Market. The Agencies also examine the

risk that a merger could enable the merged firm to extend a dominant position from one market

into a related market, thereby substantially lessening competition in the related market. For

example, the merger might lead the merged firm to leverage its position by tying, bundling,

conditioning, or otherwise linking sales of two products, excluding rival firms and ultimately

substantially lessening competition in the related market.66 The Agencies will not attempt to

assess whether such tying, bundling, conditioning, or other linkage of the two products would

itself violate any law, but instead will assess whether such conduct, if it were to occur, may tend

to extend the firm’s dominant position.

8. Mergers Should Not Further a Trend Toward Concentration.

The effect of a merger may be substantially to lessen competition or to tend to create a

monopoly if it contributes to a trend toward concentration. The Clayton Act “was designed to

arrest mergers ‘at a time when the trend to a lessening of competition in a line of commerce is

still in its incipiency.’”67 The Supreme Court has therefore “adopt[ed] an approach to a

determination of a ‘substantial’ lessening of competition [that] allow[s] the Government to rest

its case on a showing of even small increases of market share or market concentration in those

industries or markets where concentration is already great or has been recently increasing.”68

Guideline 1 explains how the Agencies consider mergers in, or resulting in, highly concentrated

markets. If concentration “has been recently increasing,” the Agencies examine whether the

merger would further that trend toward concentration.

The Agencies look for two factors that together indicate a merger would further a trend

toward concentration sufficiently that it may substantially lessen competition.

United States v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001) (en banc) (per curiam) (“[I]t would be inimical

to the purpose of the Sherman Act to allow monopolists free reign to squash nascent, albeit unproven, competitors at

will[.]”)

See id. at 79.

Ford Motor Co. v. United States, 405 U.S. 562, 571 (1972) (condemning an acquisition by a dominant firm with

the incentive to create and maintain barriers to entry into target’s market).

United States v. Marine Bancorp., 417 U.S. 602, 622 (1974) (quoting Brown Shoe, 370 U.S. at 317).

Gen. Dynamics, 415 U.S. at 497-98 nn. 7-8 (1974) (citing United States v. Continental Can Co., 378 U.S. 441,

458 (1974); United States v. Pabst Brewing Co., 384 U.S. 546, 550-552 (1966) and explaining that evidence of trend

toward concentration “would…have sufficed to support a finding of undue concentration in the absence of other

considerations.”).

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First, the Agencies consider whether the merger would occur in a market or industry

sector where there is a significant tendency toward concentration. That trend may be toward

horizontal concentration, or it may be a “trend toward vertical integration” that would ultimately

result in the “foreclosure of independent manufacturers from markets otherwise open to them.”69

(See Guideline 6). That trend can be established by market structure, for example as a steadily

increasing HHI exceeds 1,000 and rises toward 1,800. Or it can be reflected in other market

characteristics, such as the exit of significant players or other factors driving concentration.70

Second, the Agencies examine whether the merger would increase the existing level of

concentration or the pace of that trend. That may be established by a significant increase in

concentration, such as a change in HHI greater than 200, or it may be established by other facts

showing the merger would increase the pace of concentration.

9. When a Merger is Part of a Series of Multiple Acquisitions, the

Agencies May Examine the Whole Series.

A firm that engages in an anticompetitive pattern or strategy of multiple small

acquisitions in the same or related business lines may violate Section 7, even if no single

acquisition on its own would risk substantially lessening competition or tending to create a

monopoly.71 In these situations, the Agencies may evaluate the series of acquisitions as part of an

industry trend (Guideline 8) or evaluate the overall pattern or strategy of serial acquisitions by

the acquiring firm under Guidelines 1-7.

In expanding antitrust law beyond the Sherman Act through passage of the Clayton Act,

Congress intended “to permit intervention in a cumulative process when the effect of an

acquisition may be a significant reduction in the vigor of competition, even though this effect

may not be so far-reaching as to amount to a combination in restraint of trade, create a

monopoly, or constitute an attempt to monopolize.”72 As the Supreme Court has recognized, a

cumulative series of mergers can “convert an industry from one of intense competition among

many enterprises to one in which three or four large [companies] produce the entire supply.”73

Accordingly, the Agencies will consider individual acquisitions in light of the cumulative effect

of related patterns or business strategies.

The Agencies may examine a pattern or strategy of growth through acquisition by

examining both the firm’s history and current or future strategic incentives. Historical evidence

focuses on the actual acquisition practices (consummated or not) of the firm, both in the markets

at issue and in other markets, to reveal any overall strategic approach to serial acquisitions.

Evidence of the firm’s current incentives includes documents and testimony reflecting its plans

Brown Shoe, 370 U.S. at 332.

See United States v. Pabst Brewing Co., 384 U.S. 546, 550-552 (1966).

Such strategies may also violate Section 2 of the Sherman Act and Section 5 of the FTC Act. Fed. Trade Comm’n,

Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade

Commission Act at 12-14 nn.73, 82 (Nov. 10, 2022) (noting that “a series of acquisitions that tend to bring about the

harm that the antitrust laws were designed to prevent . . . ” have been subject to liability under Section 5).

H.R. Rep. No. 1191, 81st Cong., 2d Sess. 12-13 (1950).

See Brown Shoe, 370 U.S. at 334 (1962) (citing S.Rep. No. 1775, 81st Cong., 2d Sess. 5, U.S. Code Cong. and

Adm. News 1950, p. 4297.61; H.R.Rep. No. 1191, 81st Cong., 1st Sess. 8).

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and strategic incentives both for the individual acquisition and for its position in the industry

more broadly. Where one or both of the merging parties has engaged in a pattern or strategy of

pursuing consolidation through acquisition, the Agencies will examine the impact of the

cumulative strategy under any of the other Guidelines to determine if that strategy may

substantially lessen competition or tend to create a monopoly.

10.When a Merger Involves a Multi-Sided Platform, the Agencies

Examine Competition Between Platforms, on a Platform, or to

Displace a Platform.

Platforms provide different products or services to two or more different groups or

“sides” who may benefit from each other’s participation. Mergers involving platforms can give

rise to competitive problems, even when a firm merging with the platform has a relationship to

the platform that is not strictly horizontal or vertical. When evaluating a merger involving a

platform, the Agencies apply Guidelines 1-8 while accounting for market realities associated

with platform competition. Specifically, the Agencies consider competition between platforms,

competition on a platform, and competition to displace the platform.

Multi-sided platforms generally have several attributes in common, though they can also

vary in important ways. Some of these attributes include:

A. Platforms have multiple sides. On each side of a platform, platform participants provide

or use distinct products and services.74 Participants can provide or use different types of

products or services on each side.

B. A platform operator provides the core services that enable the platform to connect

participant groups across multiple sides. The platform operator controls other

participants’ access to the platform and can influence how interactions among platform

participants play out.

C. Platform participants comprise each side of a platform. Their participation might be as

simple as using the platform to find other participants, or as involved as building platform

services that enable participants to connect in new ways and allow new participants to

join the platform.

D. Network effects occur when platform participants contribute to the value of the platform

for other participants and the operator. The value for groups of participants on one side

may depend on the number of participants either on the same side (direct network effects)

or on the other side(s) (indirect network effects).75 Network effects can create a tendency

toward concentration in platform industries. Indirect network effects can be asymmetric

and heterogeneous; for example, one side of the market or segment of participants may

place relatively greater value on the other side(s).

For example, on 1990s operating-system platforms for personal computer (PC) software, software developers

were on one side, PC manufacturers on another, and software purchasers on another.

For example, 1990s PC manufacturers, software developers, and consumers all contributed to the value of the

operating system platform for one another.

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E. A conflict of interest may arise when a platform operator is also a platform participant.

The conflict of interest stems from the operator’s interest in operating the platform as a

forum for competition and its interest in winning competition on it.

Consistent with the Clayton Act’s protection of competition “in any line of commerce,” the

Agencies will seek to prohibit a merger that harms competition within a relevant market for any

product or service offered on a platform to any group of participants—i.e., around one side of the

platform (see Section III, Market Definition).76

The Agencies protect competition between platforms by preventing the acquisition or

exclusion of other platform operators that may substantially lessen competition or tend to create

a monopoly. This scenario can arise from various types of mergers:

A. Mergers involving two platform operators eliminate the competition between them. In a

market with a dominant platform, entry or growth by smaller competing platforms can be

particularly challenging because of network effects. A common strategy for smaller

platforms is to specialize, providing distinctive features. Thus, dominant platforms can

lessen competition and entrench their position by systematically acquiring platforms

while they are in their infancy. The Agencies seek to stop these trends in their incipiency.

B. A platform operator may acquire a platform participant, which can entrench the

operator’s position by depriving rivals of participants and, in turn, depriving them of

network effects. For example, acquiring a major seller on a platform may make it harder

for rival platforms to recruit buyers. The long-run benefits to a platform operator of

denying network effects to rival platforms create a powerful incentive to withhold or

degrade those rivals’ access to platform participants that the operator acquires. The more

powerful the platform operator, the greater the threat to competition presented by mergers

that may weaken rival operators or increase barriers to entry and expansion.

C. Acquisitions of firms that provide services that facilitate participation on multiple

platforms can deprive rivals of platform participants. Many services can facilitate such

participation, such as tools that help shoppers compare prices across platforms,

applications that help sellers manage listings on multiple platforms, or software that helps

users switch among platforms.

D. Mergers that involve firms that provide other important inputs to platform services can

enable the platform operator to deny rivals the benefits of those inputs. For example,

In the limited scenario of a “special type of two-sided platform known as a ‘transaction’ platform,” under the

Sherman Act, Ohio v. Am. Express, 138 S. Ct. 2274, 2280 (2018), a relevant market encompassing both sides of a

two-sided platform may be warranted. Id. Simultaneous transaction platforms have the “key feature…that they

cannot make a sale to one side of the platform without simultaneously making a sale to the other.” Id. Because “they

cannot sell transaction services to [either user group] individually…transaction platforms are better understood as

supplying only one product—transactions.” Id. at 2286. This characteristic is not present for many types of twosided or multi-sided platforms; in addition, many platforms offer simultaneous transactions as well as other products

and services, and further they may bundle these products with access to transact on the platform or offer quantity

discounts. Even for simultaneous transaction platforms, non-price evidence such as a change in market structure (see

Guideline 1) or a loss of competition between the merging firms (see Guideline 2) can still indicate that a merger

may substantially lessen competition in a line of commerce for purposes of the Clayton Act.

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acquiring data that helps facilitate matching, sorting, or prediction services may enable

the platform to weaken rival platforms by denying them that data.

The Agencies protect competition on a platform in any markets that interact with the

platform. When a merger involves a platform operator and platform participants, the Agencies

carefully examine whether the merger would create conflicts of interest that would harm

competition. A platform operator that is also a platform participant has a conflict of interest from

the incentive to give its own products and services an advantage against other competitors

participating on the platform, harming competition in the product market for that product or

service. This problem is exacerbated when discrimination in favor of a product or service would

reduce access to distribution for rivals in the participants’ market and deprive rivals of network

effects in the platform market, both extending and entrenching a dominant position.

The Agencies protect competition to displace the platform or any of its services. For

example, new technologies or services may create an important opportunity for firms to replace

one or more services the incumbent platform operator provides, shifting some participants to

partially or fully meet their needs in different ways or through different channels. Similarly, a

non-platform service can lessen dependence on the platform by providing an alternative to one or

more functions provided by the platform operators. When platform owners are dominant, the

Agencies seek to prevent even relatively small accretions of power from inhibiting the prospects

for displacing the platform or for decreasing dependency on the platform.

11.When a Merger Involves Competing Buyers, the Agencies Examine

Whether It May Substantially Lessen Competition for Workers or

Other Sellers.

A merger between competing buyers may harm sellers just as a merger between

competing sellers may harm buyers.77 The same—or analogous—tools used to assess the effects

of a merger of sellers can be used to analyze the effects of a merger of buyers, including

employers as buyers of labor. A merger of competing buyers can substantially lessen competition

by eliminating the competition between the merging buyers or by increasing coordination among

the remaining buyers. It can likewise lead to undue concentration among buyers, accelerate a

trend towards undue concentration, or entrench or extend the position of a dominant buyer.

Competition among buyers can have a variety of beneficial effects analogous to competition

among sellers. For example, buyers may compete by expanding supply networks, through

transparent and predictable contracting, procurement, and payment practices, or by investing in

technology that reduces frictions for suppliers. In contrast, a reduction in competition among

buyers can lead to artificially suppressed input prices or purchase volume, which in turn reduces

incentives for suppliers to invest in capacity or innovation. The level of concentration at which

competition concerns arise may be lower in buyer markets than in seller markets, given the

unique features of certain buyer markets.

See, e.g., Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 235-36 (1948) (in the Sherman

Act context noting that “[t]he statute does not confine its protection to consumers, or to purchasers, or to

competitors, or to sellers.… The Act is comprehensive in its terms and coverage, protecting all who are made

victims of the forbidden practices by whomever they may be perpetrated.”).

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Labor markets are important buyer markets. The same general concerns as in other

markets apply to labor markets where employers are the buyers of labor and workers are the

sellers. The Agencies will consider whether workers face a risk that the merger may substantially

lessen competition for their labor.78 Where a merger between employers may substantially lessen

competition for workers, that reduction in labor market competition may lower wages or slow

wage growth, worsen benefits or working conditions, or result in other degradations of

workplace quality. When assessing the degree to which the merging firms compete for labor, any

one or more of these effects may demonstrate that substantial competition exists between the

merging firms.

Labor markets frequently have characteristics that can exacerbate the competitive effects

of a merger between competing employers. For example, labor markets often exhibit high

switching costs and search frictions due to the process of finding, applying, interviewing for, and

acclimating to, a new job. Switching costs can also arise from investments specific to a type of

job or a particular geographic location. Moreover, the individual needs of workers may limit the

geographical and work scope of the jobs that are competitive substitutes.

In addition, finding a job requires the worker and the employer to agree to the match.

Even within a given salary and skill range, employers often have specific demands for the

experience, skills, availability, and other attributes they desire in their employees. At the same

time, workers may seek not only a paycheck but also work that they value in a workplace that

matches their own preferences, as different workers may value the same aspects of a job

differently. This matching process often narrows the range of rivals competing for any given

employee.

In light of their characteristics, labor markets are often relatively narrow.

The features of labor markets may in some cases put firms in dominant positions. To

assess this dominance in labor markets (see Guideline 7), the Agencies often examine the

merging firms’ power to cut or freeze wages, exercise increased leverage in negotiations with

workers, or generally degrade benefits and working conditions without prompting workers to

quit.

If the merger may substantially lessen competition or tend to create a monopoly in

upstream markets, that loss of competition is not offset by purported benefits in a separate

downstream product market. Because the Clayton Act prohibits mergers that may substantially

lessen competition or tend to create a monopoly in any line of commerce and in any section of

the country, a merger’s harm to competition among buyers is not saved by benefits to

competition among sellers.79 That is, a merger can substantially lessen competition in one or

See, e.g., NCAA v. Alston, 141 S. Ct. 2141 (2021) (applying the Sherman Act to protect workers from an

employer-side agreement to limit compensation).

Brown Shoe, 370 U.S. at 325 (“Because § 7 of the Clayton Act prohibits any merger which may substantially

lessen competition ‘in any line of commerce’ (emphasis supplied), it is necessary to examine the effects of a merger

in each such economically significant submarket to determine if there is a reasonable probability that the merger will

substantially lessen competition. If such a probability is found to exist, the merger is proscribed.”).

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more buyer markets, seller markets, or both, and the Clayton Act protects competition in any one

of them.

Just as they do when analyzing competition in the markets for products and services, the

Agencies will analyze labor market competition on a case-by-case basis.

12.When an Acquisition Involves Partial Ownership or Minority

Interests, the Agencies Examine Its Impact on Competition.

In many acquisitions, two companies come under common control. In some situations,

however, the acquisition of less-than-full control may still influence decision-making at the

target firm or another firm in ways that may substantially lessen competition. Acquisitions of

partial ownership or other minority interests may give the investor rights in the target firm, such

as rights to appoint board members, observe board meetings, veto the firm’s ability to raise

capital, or impact operational decisions, or access to competitively sensitive information. The

Agencies have concerns with both cross-ownership, which refers to holding a non-controlling

interest in a competitor, as well as common ownership, which occurs when individual investors

hold non-controlling interests in firms that have a competitive relationship that could be affected

by those joint holdings.

Partial acquisitions that do not result in control may nevertheless present significant

competitive concerns. The acquisition of a minority position may permit influence of the target

firm, implicate strategic decisions of the acquirer with respect to its investment in other firms, or

change incentives so as to otherwise dampen competition. The post-acquisition relationship

between the parties and the independent incentives of the parties outside the acquisition may be

important in determining whether the partial acquisition may substantially lessen competition.

Such partial acquisitions are subject to the same legal standard as any other acquisition.80

While the Agencies will consider any way in which a partial acquisition may affect

competition, they generally focus on three principal effects:

First, a partial acquisition can lessen competition by giving the partial owner the ability to

influence the competitive conduct of the target firm.81 For example, a voting interest in the target

firm or specific governance rights, such as the right to appoint members to the board of directors,

influence capital budgets, determine investment return thresholds, or select particular managers,

can create such influence. Additionally, a nonvoting interest may, in some instances, provide

opportunities to prevent, delay, or discourage important competitive initiatives, or otherwise

impact competitive decision making. Such influence can lessen competition because the partial

owner could use its influence to induce the target firm to compete less aggressively or to

coordinate its conduct with that of the acquiring firm.

See United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 592 (1957) (“[A]ny acquisition by one

corporation of all or any part of the stock of another corporation, competitor or not, is within the reach of [Section 7

of the Clayton Act] whenever the reasonable likelihood appears that the acquisition will result in a restraint of

commerce or in the creation of a monopoly of any line of commerce.”).

See United States v. Dairy Farmers of Am., Inc., 426 F.3d 850, 860–61 (6th Cir. 2005).

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Second, a partial acquisition can lessen competition by reducing the incentive of the

acquiring firm to compete.82 Acquiring a minority position in a rival might blunt the incentive of

the partial owner to compete aggressively because it may profit through dividend or other

revenue share even when it loses business to the rival. For example, the partial owner may decide

not to develop a new product feature to win market share from the firm in which it has acquired

an interest, because doing so will reduce the value of its investment in its rival. This reduction in

the incentive of the acquiring firm to compete arises even when it cannot directly influence the

conduct or decision making of the target firm.

Third, a partial acquisition can lessen competition by giving the acquiring firm access to

non-public, competitively sensitive information from the target firm. Even absent any ability to

influence the conduct of the target firm, access to competitively sensitive information can

substantially lessen competition through other mechanisms. For example, it can enhance the

ability of the target and the partial owner to coordinate their behavior and make other

accommodating responses faster and more targeted. The risk of coordinated effects is greater if

the transaction also facilitates the flow of competitively sensitive information from the investor

to the target firm. Even if coordination does not occur, the partial owner may use that

information to preempt or appropriate a rival’s competitive business strategies for its own

benefit. If rivals know their efforts to win trading partners can be immediately appropriated, they

may see less value in taking competitive actions in the first place, resulting in a lessening of

competition.

13.Mergers Should Not Otherwise Substantially Lessen Competition or

Tend to Create a Monopoly.

The analyses above address common scenarios that the Agencies use to assess the risk

that a merger may substantially lessen competition or tend to create a monopoly. However, they

are not exhaustive. The Agencies have in the past encountered mergers that lessen competition

through mechanisms not covered above. For example:

A. A merger that would enable firms to avoid a regulatory constraint because that

constraint was applicable to only one of the merging firms;

B. A merger that would enable firms to exploit a unique procurement process that favors

the bids of a particular competitor who would be acquired in the merger; or

C. In a concentrated market, a merger that would dampen the acquired firm’s incentive

or ability to compete due to the structure of the acquisition or the acquirer.

As these scenarios and these Guidelines indicate, a wide range of evidence can show that a

merger may lessen competition or tend to create a monopoly. Whatever the sources of evidence,

the Agencies look to the facts and the law in each case.

See Denver & Rio Grande v. United States, 387 U.S. 485, 504 (1967) (identifying Section 7 concerns with 20%

investment).

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III.

Market Definition

The Clayton Act protects competition “in any line of commerce in any section of the

country.”83 The Agencies identify the “area of effective competition” in which competition may

be lessened “with reference to a product market (the ‘line of commerce’) and a geographic

market (the ‘section of the country.’).”84 The Agencies refer to the process of identifying

market(s) protected by the Clayton Act as a “market definition” exercise and the markets so

defined as “relevant antitrust markets.” Market definition can also allow the Agencies to identify

market participants and measure market shares and market concentration.

A relevant antitrust market is an area of effective competition, comprising both product

(or service) and geographic elements. The outer boundaries of a relevant product market are

determined by the “reasonable interchangeability of use or the cross-elasticity of demand

between the product itself and substitutes for it.”85 Within a broad relevant market, however,

effective competition often occurs in numerous narrower relevant markets.86 Market definition

ensures that antitrust markets are sufficiently broad, but it does not lead to a single relevant

market. Section 7 of the Clayton Act prohibits any merger which may substantially lessen

competition “in any line of commerce” and in “any section of the country” and the Agencies

protect competition by challenging a merger that may lessen competition in any one or more

relevant markets.

Market participants often encounter a range of possible substitutes for the products of the

merging firms. However, a relevant market “cannot meaningfully encompass that infinite range”

of substitutes.87 There may be effective competition among a narrow group of products, and the

loss of that competition may be harmful, making the narrow group a relevant market, even if

competitive constraints from significant substitutes are outside the group. The loss of both the

competition between the narrow group of products and the significant substitutes outside that

group may be even more harmful, but that does not prevent the narrow group from being a

market in its own right.

Relevant markets need not have “precise ‘metes and bounds.’”88 Some substitutes may be

closer, and others more distant, and defining a market necessarily requires including some

substitutes and excluding others. Defining a relevant market sometimes requires a line drawing

exercise around product features, such as size, quality, distances, customer segment, or prices.

There can be many places to draw that line and properly define a relevant market. The Agencies

recognize that such scenarios are common, and indeed “fuzziness would seem inherent in any

15 U.S.C. § 18.

Brown Shoe, 370 U.S. at 324.

Brown Shoe, 370 U.S. at 325.

Id. (“[W]ithin [a] broad market, well-defined submarkets may exist which, in themselves, constitute product

markets for antitrust purposes”). Multiple overlapping markets can be appropriately defined relevant markets. For

example, a merger to monopoly for food worldwide would lessen competition in well-defined relevant markets for,

among others, food, baked goods, cookies, low-fat cookies, and premium low-fat chocolate chip cookies. Illegality

in any of these in any city or town comprising a relevant geographic market would suffice to prohibit the merger.

United States v. Cont’l Can Co., 378 U.S. 441, 449 (1964).

United States v. Gen. Dynamics Corp. 415 U.S. 486, 521 (1974).

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attempt to delineate the relevant…market.”89 Market participants may use the term “market”

colloquially to refer to a broader or different set of products than those that would be needed to

constitute a valid antitrust market.

The Agencies rely on several tools to demonstrate that a market is a relevant antitrust

market. For example, the Agencies may rely on any one or more of the following to demonstrate

the validity of a candidate relevant antitrust market.

A. Direct evidence of substantial competition between the merging parties can demonstrate

that a relevant market exists in which the merger may substantially lessen competition

and can be sufficient to identify the line of commerce and section of the country affected

by a merger, even if the precise metes and bounds of the market are not specified. (See

Guideline 2).

B. Direct evidence of the exercise of market power can demonstrate a relevant market in

which that power exists. This evidence can be valuable when assessing the risk that a

dominant position may be entrenched, maintained, or extended, since the same evidence

identifies market power and the rough contours of the relevant market.

C. A relevant market can be identified from evidence on observed market characteristics

(“practical indicia”), such as “industry or public recognition of the submarket as a

separate economic entity, the product’s peculiar characteristics and uses, unique

production facilities, distinct customers, distinct prices, sensitivity to price changes, and

specialized vendors.”90 Various practical indicia may identify a relevant market in

different settings.

D. Another “common method employed by courts and the [Agencies]…is the hypothetical

monopolist test.”91 This test examines whether a proposed market is too narrow by asking

whether a hypothetical monopolist over this market could profitably worsen terms

significantly, for example, by raising price. An analogous hypothetical monopsonist test

applies when considering the impact of a merger on competition among buyers.

Appendix 3 describes this test in more detail.

The Agencies use these tools to define relevant markets because they each leverage commercial

realities to identify an area of effective competition.

Phila. Nat’l Bank, 374 U.S. at 360 n.37.

Brown Shoe, 370 U.S. at 325, quoted in United States v. U.S. Sugar Corp., No. 22-2806, slip op. at 11, 13-14 (3d

Cir. July 13, 2023) (affirming district court’s application of Brown Shoe practical indicia to evaluate relevant

product market that included, based on the unique facts of the industry, those distributors who “could counteract

monopolistic restrictions by releasing their own supplies.”).

FTC v. Penn State Hershey Med. Center, 838 F.3d 327 (3d Cir. 2016). While these guidelines focus on applying

the hypothetical monopolist test in analyzing mergers, the test can be adapted for similar purposes in cases involving

alleged monopolization or other conduct. See, e.g., McWane, Inc. v. FTC, 783 F.3d 814, 829-30 (11th Cir. 2015).

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IV.

Rebuttal Evidence Showing that No Substantial Lessening of

Competition is Threatened by the Merger.

The Agencies may assess whether a merger may substantially lessen competition or tend

to create a monopoly based on a fact-specific analysis under any one or more of the Guidelines

discussed above.92 Supreme Court precedent also examines whether “other pertinent factors”

presented by the merging parties nonetheless “mandate[] a conclusion that no substantial

lessening of competition [is] threatened by the acquisition.”93

Several types of rebuttal and defense evidence are subject to legal tests established by the

courts. The Agencies apply those tests consistent with prevailing law, as described below.

1. Failing Firms

When merging parties suggest the weak or weakening financial position of one of the

merging parties will prevent a lessening of competition, the Agencies examine that evidence

under the “failing firm” defense established by the Supreme Court. This defense applies when

the assets to be acquired would imminently cease playing a competitive role in the market even

absent the merger.

As set forth by the Supreme Court, the failing firm defense has three requirements:

A. “[T]he evidence show[s] that the [failing firm] face[s] the grave probability of a

business failure.”94 The Agencies typically look for evidence in support of this

element that the allegedly failing firm would be unable to meet its financial

obligations in the near future. Declining sales and/or net losses, standing alone, are

insufficient to show this requirement.

B. “The prospects of reorganization of [the failing firm are] dim or nonexistent.”95 The

Agencies typically look for evidence suggesting that the failing firm would be unable

to reorganize successfully under Chapter 11 of the Bankruptcy Act, taking into

account that “companies reorganized through receivership, or through [the

Bankruptcy Act] often emerge[] as strong competitive companies.”96 Evidence of the

firm’s actual attempts to resolve its debt with creditors is important.

C. “[T]he company that acquires the failing [firm] or brings it under dominion is the

only available purchaser.”97 The Agencies typically look for evidence that a company

See United States v. AT&T, Inc., 916 F.3d 1029, 1032 (D.C. Cir. 2019) (either “short cut” market-concentration

presumption or “fact-specific showing” sufficient to establish prima facie case of Section 7 violation).

See Gen. Dynamics, 415 U.S. 486, 498 (1974); United States v. Baker Hughes, 908 F.2d 981, 990 (D.C. Cir.

1990) (quoting General Dynamics and describing its holding as permitting rebuttal based on a “finding that ‘no

substantial lessening of competition occurred or was threatened by the acquisition’”).

Citizen Publ’g Co. v. United States, 394 U.S. 131, 138 (1969).

Citizen Publ’g, 394 U.S. at 138.

Id.

Id. at 136-39 (1969) (quoting Int’l Shoe Co. v. FTC, 280 U.S. 291, 302 (1930)).

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has made unsuccessful good-faith efforts to elicit reasonable alternative offers that

pose a less severe danger to competition than does the proposed merger.98

Although merging parties sometimes argue that a poor or weakening position should serve as a

defense even when it does not meet these elements, the Supreme Court has “confine[d] the

failing company doctrine to its present narrow scope.”99 The Agencies evaluate evidence of a

failing firm consistent with this prevailing law.100

2. Entry and Repositioning

Merging parties sometimes raise a rebuttal claiming that a reduction in competition

resulting from the merger would induce entry into the relevant market, preventing the merger

from substantially lessening competition in the first place. This claim posits that a merger may,

by substantially lessening competition, make the market more profitable for the merged firm and

any remaining competitors, and that this increased profitability may induce new entry. To

evaluate this rebuttal evidence, the Agencies assess whether entry induced by the merger would

be “timely, likely, and sufficient in its magnitude, character, and scope to deter or counteract the

competitive effects of concern.”101

A. Timeliness. To show that no substantial lessening of competition is threatened by a

merger, entry must be rapid enough to replace lost competition before any effect from

the loss of competition due to the merger may occur. Entry in most industries takes a

significant amount of time and is therefore insufficient to counteract any substantial

lessening of competition that is threatened by a merger. Moreover, the entry must be

durable: an entrant that does not plan to sustain its investment or that may exit the

market would not ensure long-term preservation of competition.

B. Likelihood. Entry induced by lost competition must be so likely that no substantial

lessening of competition is threatened by the merger. Firms make entry decisions

based on the market conditions they expect once they participate in the market. If the

new entry is sufficient to counteract the merger’s effect on competition, the Agencies

analyze why the merger would induce entry that was not planned in pre-merger

competitive conditions.

Any offer to purchase the assets of the failing firm for a price above the liquidation value of those assets will be

regarded as a reasonable alternative offer. Parties must solicit reasonable alternative offers before claiming that the

business is failing. Liquidation value is the highest value the assets could command outside the market. If a

reasonable alternative offer was rejected, the parties cannot claim that the business is failing.

Citizen Publ’g Co. v. United States, 394 U.S. at 139.

100

The Agencies do not normally credit claims that the assets of a division would exit the relevant market in the near

future unless: (1) applying cost allocation rules that reflect true economic costs, the division has a persistently

negative cash flow on an operating basis, and such negative cash flow is not economically justified for the firm by

benefits such as added sales in complementary markets or enhanced customer goodwill; and (2) the owner of the

failing division has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its

assets in the relevant market and pose a less severe danger to competition than does the proposed acquisition.

Because firms can allocate costs, revenues, and intra-company transactions among their subsidiaries and divisions,

the Agencies require evidence that is not solely based on management plans that could have been prepared for the

purpose of demonstrating negative cash flow or the prospect of exit from the relevant market.

101

FTC v. Sanford Health, 926 F.3d 959, 965 (8th Cir. 2019).

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The Agencies also assess whether the merger may increase entry barriers. For

example, the merging firms may have a greater ability to discourage or block new

entry when combined than they would have as separate firms. Mergers may enable or

incentivize unilateral or coordinated exclusionary strategies that make entry more

difficult. Entry can be particularly challenging when a firm must enter at multiple

levels of the market at sufficient scale to compete effectively.

C. Sufficiency. Even where timely and likely, the prospect of entry may not effectively

prevent a merger from threatening a substantial lessening of competition. Entry may

be insufficient due to a wide variety of constraints that limit an entrant’s effectiveness

as a competitor. Entry must at least replicate the scale, strength, and durability of one

of the merging parties to be considered sufficient. The Agencies typically do not

credit entry that depends on lessening competition in other markets.

As part of their analysis, the Agencies will consider the economic realities at play. For

example, lack of successful entry in the past will likely suggest that entry may be slow or

difficult. Recent examples of entry, whether successful or unsuccessful, provide the starting

point for identifying the elements of practical entry barriers and the features of the industry that

facilitate or interfere with entry.

3. Procompetitive Efficiencies

The Supreme Court has held that “possible economies [from a merger] cannot be used as

a defense to illegality.”102 Competition usually spurs firms to achieve efficiencies internally, and

Congress and the courts have indicated their preference for internal efficiencies and organic

growth. Firms also often work together using contracts short of a merger to combine

complementary assets without the full anticompetitive consequences of a merger.

Merging parties sometimes raise a rebuttal argument that, notwithstanding other evidence

that competition may be lessened, evidence of procompetitive efficiencies shows that no

substantial lessening of competition is in fact threatened by the merger. When assessing this

argument, the Agencies will not credit vague or speculative claims, nor will they credit benefits

outside the relevant market.103 Rather, the Agencies examine whether the evidence104 presented

by the merging parties shows each of the following:

A. Merger Specificity. The merger will produce substantial competitive benefits that

could not be achieved without the merger under review.105 Alternative ways of

achieving the claimed benefits are considered in making this determination.

102

Phila. Nat’l Bank, 374 U.S. at 371; FTC v. Procter & Gamble Co., 386 U.S. 568, 580 (1967) (“Congress was

aware that some mergers which lessen competition may also result in economies but it struck the balance in favor of

protecting competition.”).

103

Miss. River Corp. v. FTC, 454 F.2d 1083, 1089 (8th Cir. 1972) (“[T]he anticompetitive effects of an acquisition

in one market cannot be justified by procompetitive effects in another market. Honest intentions, business purposes

and economic benefits are not a defense to violations of an antimerger law.”).

104

In general, evidence related to efficiencies developed prior to the merger challenge is much more probative than

evidence developed during the Agencies’ investigation or litigation.

105

If inter-firm collaborations are achievable by contract, they are not merger specific. The Agencies will credit the

merger specificity of efficiencies only in the presence of identified barriers to achieving them by contract.

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Alternative arrangements could include organic growth of one of the merging firms,

contracts between them, mergers with others, or a partial merger involving only those

assets that give rise to the procompetitive efficiencies.

B. Verifiability. These benefits are verifiable, and have been verified, using reliable

methodology and evidence not dependent on the subjective predictions of the

merging parties or their agents. Procompetitive efficiencies are often speculative and

difficult to verify and quantify, and efficiencies projected by the merging firms often

are not realized. If reliable methodology for verifying efficiencies does not exist or is

otherwise not presented by the merging parties, the Agencies are unable to credit

those efficiencies.

C. Pass Through to Prevent a Reduction in Competition. To the extent efficiencies

merely benefit the merging firms, they are not cognizable. The merging parties must

show that, within a short period of time, the benefits will improve competition in the

relevant market or prevent the threat that it may be lessened.

D. Procompetitive. Any benefits claimed by the merging parties are cognizable only if

they do not result from the anticompetitive worsening of terms for the merged firm’s

trading partners.106 Similarly, efficiencies are not cognizable if they will accelerate a

trend toward concentration (see Guideline 8) or vertical integration (see Guideline 6).

Procompetitive efficiencies that satisfy each of these criteria are called cognizable efficiencies.

To overcome evidence that a merger may substantially lessen competition, cognizable

efficiencies must be of sufficient magnitude and likelihood that no substantial lessening of

competition is threatened by the merger in any relevant market. Cognizable efficiencies that

would not prevent the creation of a monopoly cannot justify a merger that may tend to create a

monopoly.

4. Structural Barriers to Coordination Unique to the Industry

When market structure evidence suggests that a merger may substantially lessen

competition through coordination (Guidelines 1 and 3), the merging parties sometimes argue that

anticompetitive coordination is nonetheless impossible due to structural market barriers to

coordinating. The Agencies consider whether structural market barriers to coordination are “so

much greater in the [relevant] industry than in other industries that they rebut the normal

presumption” of coordinated effects.107 In the Agencies’ experience, structural conditions that

prevent coordination are exceedingly rare in the modern economy. The greater the level of

concentration in the relevant market, the greater must be the structural barriers to coordination in

order to show that no substantial lessening of competition is threatened.

106

The Agencies will not credit efficiencies if they reflect or require a decrease in competition in a separate market.

For example, if input costs are expected to decrease, the cost savings will not be treated as an efficiency if they

reflect an increase in monopsony power.

107

See FTC v. H.J. Heinz, Co., 246 F.3d 708, 725 (D.C. Cir. 2001).

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Appendix 1: Sources of Evidence

This appendix describes the most common sources of evidence the Agencies draw on in a

merger investigation. The evidence the Agencies will rely upon to evaluate whether a merger

may substantially lessen competition or tend to create a monopoly is weighed based on its

probative value. In assessing the available evidence, the Agencies consider documents,

testimony, available data, and analysis of those data, including credible econometric analysis and

economic modeling.

Merging Parties. The Agencies often obtain substantial information from the merging

parties, including documents, testimony, and data. Across all of these categories, evidence

created in the normal course of business is more probative than evidence created after the

company began anticipating a merger review. Similarly, the Agencies give less weight to

predictions by the parties or their employees, whether in the ordinary course of business or in

anticipation of litigation, offered to allay competition concerns. Where the testimony of

outcome-interested merging party employees contradicts ordinary course business records, the

Agencies typically give greater weight to the business records.

Evidence that the merging parties intend or expect the merger to lessen competition, such

as plans to coordinate with other firms, raise prices, reduce output or capacity, reduce product

quality or variety, lower wages, cut benefits, exit a market, cancel plans to enter a market without

a merger, withdraw products or delay their introduction, or curtail research and development

efforts after the merger, can be highly informative in evaluating the effects of a merger on

competition. The Agencies give little weight, however, to the lack of such evidence or the

expressed contrary intent of the merging parties.

Customers, Workers, Industry Participants, and Observers. Customers can provide a

variety of information to the Agencies, ranging from information about their own purchasing

behavior and choices to their views about the effects of the merger itself. The Agencies consider

the relationship between customers and the merging parties in weighing customer evidence. The

ongoing business relationship between a customer and a merging party may discourage the

customer from providing evidence inconsistent with the interests of the merging parties.

Workers and representatives from labor organizations can provide information regarding,

among other things, wages, non-wage compensation, working conditions, the individualized

needs of workers in the market in question, the frictions involved in changing jobs, and the

industry in which they work.

Similarly, other suppliers, indirect customers, distributors, consultants, and industry

analysts can also provide information helpful to a merger inquiry. As with other interested

parties, the Agencies give less weight to evidence created in anticipation of a merger

investigation and more weight to evidence developed in the ordinary course of business.

Market Effects in Consummated Mergers. Evidence of observed post-merger price

increases or worsened terms is given substantial weight. A consummated merger, however, may

substantially lessen competition even if such effects have not yet been observed, perhaps because

the merged firm may be aware of the possibility of post-merger antitrust review and is therefore

moderating its conduct. Consequently, in evaluating consummated mergers, the Agencies also

consider the same types of evidence when evaluating proposed mergers.

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Econometric Analysis and Economic Modeling. Econometric analysis of data and other

types of economic modeling can be informative in evaluating the potential effects of a merger on

competition. The Agencies typically give more weight to analysis using high quality data and

adhering to rigorous standards. But the Agencies also take into account that in some cases, the

availability or quality of data or reliable modeling techniques might limit the availability and

relevance of econometric modeling. When data is available, the Agencies recognize that the goal

of economic modeling is not to create a perfect representation of reality, but rather to inform an

assessment of the likely change in firm incentives resulting from a merger.

Transaction Terms. The financial terms of the transaction may also be informative

regarding a merger’s impact on competition. For example, a purchase price that exceeds the

acquired firm’s stand-alone market value can sometimes indicate that the acquiring firm is

paying a premium because it expects to be able to benefit from reduced competition.

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Appendix 2. Evaluating Competition Between Firms

This appendix discusses evidence and tools the Agencies look to when assessing

competition between firms. The evidence and tools in this section can be relevant to a variety of

settings, for example: to assess competition between rival firms (Guideline 2); the incentive to

reduce or withhold access to a product rivals use to compete (Guideline 5); or for market

definition (Section III of these Guidelines), for example when carrying out the Hypothetical

Monopolist Test (Appendix 3.A).

For clarity, the discussion in this appendix often focuses on competition between two

suppliers of substitute products that set prices. Analogous analytic tools may also be relevant in

more general settings, for example when considering: competition between more than two

suppliers; competition among buyers or employers to procure inputs and labor; competition that

derives from customer willingness to buy in different locations; and competition that takes place

in dimensions other than price or when terms are determined through, for example, negotiations

or auctions.

Guideline 2 describes how different types of evidence can be used in assessing the

potential harm to competition from a merger; some portions of Guideline 2 that are relevant in

other settings are repeated below.

A. Generally Applicable Considerations

The Agencies may consider one or more of the following types of evidence, tools, and

metrics when assessing the degree of competition among firms:

Strategic Deliberations or Decisions. The Agencies may analyze the extent of

competition between the merging firms by examining evidence of their strategic deliberations or

decisions in the regular course of business, as well as information considered during the process

of deciding whether to merge. For example, in some markets, the firms may monitor each other’s

pricing, marketing campaigns, facility locations, improvements, products, capacity, output, input

costs, and/or innovation plans. This can provide evidence of competition between the merging

firms, especially when they react by taking steps to preserve or enhance the competitiveness or

profitability of their own products or services.

Prior Merger, Entry, and Exit Events. The Agencies may look to historical events to

assess the presence and substantiality of direct competition between the merging firms. For

example, the Agencies may examine the impact of recent relevant mergers, entry, expansion, or

exit events.

Customer Substitution. Customers’ willingness to switch between different firms’

products is an important part of the competitive process. Firms are closer competitors the more

that customers are willing to switch between their products.

Evidence commonly analyzed to show the extent of substitution among firms’ products

includes: how customers have shifted purchases in the past in response to relative changes in

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price or other terms and conditions; documentary and testimonial evidence such as win/loss

reports, evidence from discount approval processes, switching data, customer surveys, as well as

information from suppliers of complementary products and distributors; objective information

about product characteristics; and market realities affecting the ability of customers to switch.

Impact of Competitive Actions on Rivals. Competitive actions, such as lowering prices

or increasing output, by one firm can increase its sales at the expense of its rivals. The Agencies

may gauge the extent of competition among firms by considering the impact that competitive

actions by one firm have on the others. The impact of a firm’s competitive actions on a rival

generally depends on how many sales a rival would lose as a result of the competitive actions, as

well as the profitability of those lost sales. The Agencies may use margins to measure the

profitability of the sale a rival would have made.1

Impact of Eliminating Competition Between the Firms. In some instances, evidence

may be available to assess the impact of competition from one or more firms on the other firms’

actions, such as firm choices about price, quality, wages, or another dimension of competition.

This can be gauged by comparing the two firms’ actions when they compete and make strategic

choices independently, against the actions the firms might choose if they acted jointly. Actual or

predicted changes in these results of competition, when available, can indicate the degree of

competition between the firms.

To make this type of comparison, the Agencies sometimes rely on economic models.

Often, such models consider the firms’ incentives to change their actions in one or more selected

dimensions, such as price, in a hypothetical, simplified scenario. For example, a model might

focus on the firms’ short-run incentives to change price, while abstracting from a variety of

additional competitive forces and dimensions of competition, such as the potential for firms to

reposition their products or for the merging firms to coordinate with other firms. Such a model

may incorporate data and evidence in order to produce quantitative estimates of the impact of a

loss of competition on firm incentives and corresponding choices. For example, the model may

yield a range of estimates of the effect of a merger on short-run prices or output. This type of

exercise is sometimes referred to by economists as “merger simulation” despite the fact that the

hypothetical setting considers only selected aspects of the loss of competition from a merger.

The Agencies use such models to give an indication of the scale and importance of competition,

not to precisely predict outcomes.

B. Considerations When Terms Are Set by Firms

The Agencies may use various types of evidence and metrics to assess the strength of

competition between firms that offer the same terms to many different customers. Firms might

offer different terms to different groups of customers.

The margin on incremental units is the difference between incremental revenue (often equal to price) and

incremental cost on those units. The Agencies may use accounting data to measure incremental costs, but do not

necessarily rely on accounting margins recorded by firms in the ordinary course of business because such margins

often do not align with the concept of incremental cost that is relevant in economic analysis of a merger.

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Competition in this setting can lead firms to set lower prices or offer more attractive

terms when they act independently than they would in a setting where that competition was

eliminated by a merger. When considering the impact of competition on the incentives to set

price, to the extent price increases on one firm’s products would lead customers to switch to

products from the other firm, their merger will enable the merged firm to profit by unilaterally

raising the price of one or both products above the pre-merger level. Some of the sales lost

because of the price increase will be diverted to the products of the other firm, and capturing the

value of these diverted sales can make the price increase profitable even though it would not

have been profitable prior to the merger.

A measure of customer substitution between firms in this setting is the diversion ratio.

The diversion ratio from one product to another is a metric of how customers likely would

substitute between them. The diversion ratio is the fraction of unit sales lost by the first product

due to a change in terms, such as an increase in its price that would be diverted to the second

product. The higher the diversion ratio between two products made by different firms, the

stronger the competition between them.

A high diversion ratio between the products owned by the merging firms can indicate

strong competition between them even if the diversion ratio to a non-merging firm is higher. The

diversion ratio from one of the products of one firm to a group of products made by other firms,

defined analogously, is sometimes referred to as the aggregate diversion ratio or the recapture

rate.

A measure of the impact on rivals of competitive actions is the value of diverted sales

from a price increase. The value of sales diverted from one firm to a second firm, when the first

firm raises its price on one of its products, is equal to the number of units that would be diverted

from the first firm to the second, multiplied by the difference between the second firm’s price

and the incremental cost of the diverted sales. To interpret the magnitude of the value of diverted

sales, the Agencies may use as a basis of comparison either the incremental cost to the second

firm of making the diverted sales, or the revenues lost by the first firm as a result of the price

increase. The ratio of the value of diverted sales to the revenues lost by the first firm can be an

indicator of the upward pricing pressure that would result from the loss of competition between

the two firms. Analogous concepts can be applied to analyze the impact on rivals of worsening

terms other than price.

C. Considerations When Terms Are Set Through Bargaining or

Auctions

In some industries, buyers and sellers negotiate prices and other terms of trade. In

bargaining, buyers commonly negotiate with more than one seller, and may play competing

sellers off against one another. In other industries, sellers might sell their products, or buyers

might procure inputs, using an auction. Negotiations may involve aspects of an auction as well as

aspects of one-on-one negotiation. Competition among sellers can significantly enhance the

ability of a buyer to obtain a result more favorable to it, and less favorable to the sellers,

compared to a situation where the elimination of competition through a merger prevents buyers

from playing those sellers off against each other in negotiations.

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Sellers may compete even when a customer does not directly play their offers against

each other. The attractiveness of alternative options influences the importance of reaching an

agreement to the negotiating parties and thus the terms of the agreement. A party that has many

attractive alternative trading partners places less importance on reaching agreement with any one

particular trading partner than a party with few attractive alternatives. As alternatives for one

party are eliminated (such as through a merger), the counterparty gains additional bargaining

leverage reflecting that loss of competition. A merger between sellers may lessen competition

even if the merged firm handles negotiations for the merging firms’ products separately.

Thus, qualitative or quantitative evidence about the leverage provided to buyers by

competing suppliers may be used to assess the extent of competition among firms in this setting.

Analogous evidence may be used when analyzing a setting where terms are set using auctions,

for example, procurement auctions where suppliers bid to serve a buyer. If, for some categories

of procurements, suppliers are often among the most attractive to the buyer, competition among

them is likely to be strong.

Firms sometimes keep records of the progress and outcome of individual sales efforts,

and the Agencies may use this data to generate measures of the extent to which customers would

likely substitute between the two firms. Examples of such measures might include a diversion

ratio based on the rate at which customers would buy from one firm if the other one was not

available, or the frequency with which the two firms bid on contracts with the same customer.

D. Considerations When Firms Determine Capacity and Output

In some markets, the choice of how much to produce (output decisions) or how much

productive capacity to maintain (capacity decisions) are key strategic variables. When a firm

decreases output, it may lose sales to rivals, but also drive up prices. Because a merged firm will

account for the impact of higher prices across all of the merged firms’ sales, it may have an

incentive to decrease output as a result of the merger. The loss of competition through a merger

of two firms may lead the merged firm to leave capacity idle, refrain from building or obtaining

capacity that would have been obtained absent the merger, lay off or stop hiring workers, or

eliminate pre-existing production capabilities. A firm may also divert the use of capacity away

from one relevant market and into another market so as to raise the price in the former market.

The analysis of the extent to which firms compete may differ depending on how a merger

between them might create incentives to suppress output.

Competition between merging firms is greater when (1) the merging firms’ market shares

are relatively high; (2) the merging firms’ products are relatively undifferentiated from each

other; (3) the market elasticity of demand is relatively low; (4) the margin on the suppressed

output is relatively low; and (5) the supply responses of non-merging rivals are relatively small.

Qualitative or quantitative evidence may be used to evaluate and weigh each of these factors.

In some cases, competition between firms—including one firm with a substantial share of

the sales in the market and another with significant excess capacity to serve that market—can

prevent an output suppression strategy from being profitable. This can occur even if the firm

with the excess capacity has a relatively small share of sales, as long as that firm’s ability to

expand, and thus keep prices from rising, makes an output suppression strategy unprofitable for

the firm with the larger market share.

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Output or capacity reductions also may affect the market’s resilience in the face of future

shocks to supply or demand, and the Agencies will consider this loss of resilience in assessing

whether the merger may substantially lessen competition or tend to create a monopoly.

E. Considerations for Innovation and Product Variety Competition

Firms can compete for customers by offering varied and innovative products and

features, which could range from minor improvements to the introduction of a new product

category. Features can include new or different product attributes, services offered along with a

product, or higher-quality services standing alone. Customers value the variety of products or

services that competition generates, including having a variety of locations at which they can

shop.

Offering the best mix of products and features is a critically important dimension of

competition that may be harmed as a result of the elimination of competition between the

merging parties.

When a firm introduces a new product or improves a product’s features, some of the sales

it gains may be at the expense of its rivals, including rivals that are competing to develop similar

products and features. As a result, competition between firms may lead them to make greater

efforts to offer a variety of products and features than would be the case if the firms were jointly

owned, for example, if they merged. The merged firm may have a reduced incentive to continue

or initiate development of new products that would have competed with the other merging party,

but post-merger would “cannibalize” what would be its own sales.2 A service provider may have

a reduced incentive to continue valuable upgrades offered by the acquired firm. The merged firm

may have a reduced incentive to engage in disruptive innovation that would threaten the business

of one of the merging firms. Or it may have the incentive to change its product mix, such as by

ceasing to offer one of the merging firms’ products.

The incentives to compete aggressively on innovation and product variety depend on the

capabilities of the firms and on customer reactions to the new offerings. Development of new

features depends on having the appropriate expertise and resources. Where firms are two of a

small number of companies with specialized employees, development facilities, intellectual

property, or research projects in a particular area, competition between them will have a greater

impact on their incentives to innovate.

Innovation may be directed at outcomes beyond product features; for example,

innovation may be directed at reducing costs or adopting new technology for the distribution of

products.

Sales “cannibalization” refers to a situation where customers of a firm substitute away from one of the firm’s

products and to another product offered by the same firm.

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Appendix 3: Details of Market Definition

Section III of these Guidelines describes several approaches that can be used to define

markets. In this appendix, we further discuss several details of market definition. Appendix 3.A

describes one of the approaches, the Hypothetical Monopolist Test, in greater detail. Appendix

3.B addresses issues that may arise when defining antitrust markets in a number of specific

scenarios.

A. The Hypothetical Monopolist Test

This Section describes the Hypothetical Monopolist Test, which is a method by which the

Agencies often define antitrust markets. As outlined in Section III of these Guidelines, a relevant

antitrust market is an area of effective competition. The Hypothetical Monopolist/Monopsonist

Test (“HMT”) evaluates whether a group of products is sufficiently broad to constitute a relevant

antitrust market. To do so, the HMT asks whether eliminating the competition among the group

of products by combining them under the control of a hypothetical monopolist likely would lead

to a worsening of terms for customers. The Agencies generally focus their assessment on the

constraints from competition, rather than on constraints from regulation, entry, or other market

changes. The Agencies are concerned with the impact on economic incentives and assume the

hypothetical monopolist would seek to maximize profits.

When evaluating a merger of sellers, the HMT asks whether a hypothetical profitmaximizing firm, not prevented by regulation from worsening terms, that was the only present

and future seller of a group of products (“hypothetical monopolist”) likely would undertake at

least a small but significant and non-transitory increase in price (“SSNIP”) or other worsening of

terms (“SSNIPT”) for at least one product in the group.3 For the purpose of analyzing this issue,

the terms of sale of products outside the candidate market are held constant. Analogously, when

considering a merger of buyers, the Agencies ask the equivalent question for a hypothetical

monopsonist. This Appendix often focuses on merging sellers to simplify exposition.

1. Implementing the Hypothetical Monopolist Test

The SSNIPT. A SSNIPT may entail worsening terms along any dimension of

competition, including price (SSNIP), but also other terms (broadly defined) such as quality,

service, capacity investment, choice of product variety or features, or innovative effort.

Input and Labor Markets. When the competition at issue involves firms buying inputs or

employing labor, the HMT considers whether the hypothetical monopsonist would undertake at

If the pricing incentives of the firms supplying the products in the group differ substantially from those of the

hypothetical monopolist, for reasons other than the latter’s control over a larger group of substitutes, the Agencies

may instead employ the concept of a hypothetical profit-maximizing cartel comprised of the firms (with all their

products) that sell the products in the candidate market. This approach is most likely to be appropriate if the merging

firms sell products outside the candidate market that significantly affect their pricing incentives for products in the

candidate market. This could occur, for example, if the candidate market is one for durable equipment and the firms

selling that equipment derive substantial net revenues from selling spare parts and service for that equipment.

Analogous considerations apply when considering a SSNIPT for terms other than price.

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least a SSNIPT, such as a decrease in the offered price or a worsening of the terms of trade

offered to suppliers, or a decrease in the wage offered to workers or a worsening of their working

conditions or benefits.

The Geographic Dimension of the Market. The hypothetical monopolist test is generally

applied to a group of products together with a geographic region to determine a relevant market,

though for ease of exposition the two dimensions are discussed separately, with geographic

market definition discussed in Appendix 3.B.2.

Negotiations or Auctions. For clarity, the HMT is stated in terms of a hypothetical

monopolist undertaking a SSNIPT. This includes the hypothetical monopolist imposing a price

increase, but it also applies to cases where terms are the result of a negotiation or an auction.

Benchmark for the SSNIPT. The HMT asks whether the hypothetical monopolist likely

would worsen terms relative to those that likely would prevail absent the proposed merger. In

some cases, the Agencies will use as a benchmark different outcomes than those prevailing prior

to the merger. For example, if outcomes are likely to change absent the merger, e.g., because of

innovation, entry, exit, or exogenous trends, the Agencies may use anticipated future outcomes

as the benchmark. Or if suppliers in the market are coordinating prior to the merger, the

Agencies may use a benchmark that reflects conditions that would arise if coordination were to

break down. When evaluating whether a merging firm is dominant (Guideline 7), the Agencies

may use terms that likely would prevail in a more competitive market as a benchmark.4

Magnitude of the SSNIPT. What constitutes a “small but significant” worsening of terms

depends upon the nature of the industry and the merging firms’ positions in it, the ways that

firms compete, and the dimension of competition at issue. When considering price, the Agencies

will often use a SSNIP of five percent of the price charged by firms for the products or services

to which the merging firms contribute value. The Agencies, however, may consider a different

term or a price increase that is larger or smaller than five percent.5

The Agencies may base a SSNIP on explicit or implicit prices for the firms’ specific

contribution to the value of the product sold, or an upper bound on the firms’ specific

contribution, where these can be identified with reasonable clarity. For example, the Agencies

may derive an implicit price for the service of transporting oil over a pipeline as the difference

between the price the pipeline firm paid for oil at one end and the price it sold the oil for at the

other and base the SSNIP on this implicit price.

In the entrenchment context, if the inquiry is being conducted after market or monopoly power has already been

exercised, using prevailing prices can lead to defining markets too broadly and thus inferring that dominance does

not exist when, in fact, it does. The problem with using prevailing prices to define the market when a firm is already

dominant is known as the “Cellophane Fallacy.”

The five percent price increase is not a threshold of competitive harm from the merger. Because the five percent

SSNIP is a minimum expected effect of a hypothetical monopolist of an entire market, the actual predicted effect of

a merger within that market may be significantly lower than five percent. A merger within a well-defined market

that causes undue concentration can be illegal even if the predicted price increase is well below the SSNIP of five

percent.

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2. Evidence and Tools for Carrying Out the Hypothetical Monopolist Test

Appendix 2 describes some of the qualitative and quantitative evidence and tools the

Agencies can use to assess the extent of competition between two firms. The Agencies can use

similar evidence and analogous tools to apply the HMT, in particular to assess whether

competition among a set of firms likely leads to better terms than a hypothetical monopolist

would undertake.

The Agencies sometimes interpret the qualitative and quantitative evidence using an

economic model of the profitability to the hypothetical monopolist of undertaking at least a

SSNIP on one or more products in the candidate market; the Agencies may adapt these tools to

apply to other forms of SSNIPTs.

One approach utilizes the concept of a “recapture rate” (the percentage of sales lost by

one product in the candidate market, when its price alone rises, that is recaptured by other

products in the candidate market). A price increase is profitable when the recapture rate is high

enough that the incremental profits from the increased price plus the incremental profits from the

recaptured sales going to other products in the candidate market exceed the profits lost when

sales are diverted outside the candidate market. It is possible that a price increase is profitable

even if a majority of sales are diverted outside the candidate market, for example if the profits on

the lost sales are relatively low or the profits on the recaptured sales are relatively high.

Sometimes evidence is presented in the form of “critical loss analysis,” which can be

used to assess whether imposing at least a SSNIP on one or more products in a candidate market

would raise or lower the hypothetical monopolist’s profits. Critical loss analysis compares the

magnitude of the two offsetting effects resulting from the price increase. The “critical loss” is

defined as the number of lost unit sales that would leave profits unchanged. The “predicted loss”

is defined as the number of unit sales that the hypothetical monopolist is predicted to lose due to

the price increase. The price increase raises the hypothetical monopolist’s profits if the predicted

loss is less than the critical loss. Smaller or larger price increases may be even more profitable or

more likely to be implemented by the hypothetical monopolist.

The Agencies require that estimates of the predicted loss be consistent with other

evidence, including the pre-merger margins of products in the candidate market used to calculate

the critical loss. Unless the firms are engaging in coordinated interaction, high pre-merger

margins normally indicate that each firm’s product individually faces demand that is not highly

sensitive to price. Higher pre-merger margins thus indicate a smaller predicted loss as well as a

smaller critical loss. The higher the pre-merger margin, the smaller the recapture rate6 necessary

for the candidate market to satisfy the hypothetical monopolist test. Similar considerations

inform other analyses of the profitability of a price increase.

B. Market Definition in Certain Specific Settings

This Appendix provides details on market definition in several specific common settings.

In much of this section, concepts are presented for the scenario where the merger involves

The recapture rate is sometimes referred to as the aggregate diversion ratio, defined in Appendix 2.B.

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sellers. In some cases, clarifications are provided as to how the concepts apply to merging

buyers; in general, the concepts apply in an analogous way.

Targeted Trading Partners

If the merged firm could profitably target a subset of customers for changes in prices or

other terms, the Agencies may identify relevant markets defined around those targeted

customers. The Agencies may do so even if firms are not currently targeting specific customer

groups but could do so after the merger.

For targeting to be feasible, two conditions typically must be met. First, the suppliers

engaging in targeting must be able to set different terms for targeted customers than other

customers. This may involve identification of individual customers to which different terms are

offered or offering different terms to different types of customers based on observable

characteristics.7 Markets for targeted customers need not have precise metes and bounds. In

particular, defining a relevant market for targeted customers sometimes requires a line-drawing

exercise on observable characteristics. There can be many places to draw that line and properly

define a relevant market. Second, the targeted customers must not be likely to defeat a targeted

worsening of terms by arbitrage (e.g., by purchasing indirectly from or through other customers).

Arbitrage may be difficult if it would void warranties or make service more difficult or costly for

customers, and it is inherently impossible for many services. Arbitrage on a modest scale may be

possible but sufficiently costly or limited, for example due to transaction costs or search costs,

that it would not deter or defeat a discriminatory pricing strategy.

If prices are negotiated or otherwise set individually, for example through a procurement

auction, there may be relevant markets that are as narrow as an individual customer.

Nonetheless, for analytic convenience, the Agencies may define cluster markets for groups of

targeted customers for whom the conditions of competition are reasonably similar. (See

Appendix 3.B.4 for further discussion of cluster markets.)

Analogous considerations arise for a merger involving one or more buyers or employers.

In this case, the analysis considers whether buyers target suppliers, for example by paying

targeted suppliers or workers less, or by degrading the terms of supply contracts for targeted

suppliers. Arbitrage would involve a targeted supplier selling to the buyer indirectly, through a

different supplier who could obtain more favorable terms from the buyer.

If the HMT is applied in a setting where targeting of customers is feasible, it requires that

a hypothetical profit-maximizing firm that was the only present or future seller of the relevant

product(s) to customers in the targeted group would undertake at least a SSNIPT on some,

though not necessarily all, customers in that group. The products sold to those customers form a

relevant market if the hypothetical monopolist likely would undertake at least a SSNIPT despite

the potential for customers to substitute away from the product or to take advantage of arbitrage.

In some cases, firms offer one or more versions of products or services defined by their characteristics (where

brand might be a characteristic). When customers can select among these products and terms do not vary by

customer, the Agencies will typically define markets based on products rather than the targeted customers. In such

cases, relevant antitrust markets may include only some of the differentiated products, for example products with

only “basic” features, or products with “premium features.” The tools described in Appendix 2 can be used to assess

competition among differentiated products.

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In this exercise, the terms of sale for products sold to all customers outside the region are held

constant.

2. Geographic Markets

A relevant antitrust market is an area of effective competition, comprising both product

(or service) and geographic elements. A market’s geography depends on the limits that distance

puts on some customers’ willingness or ability to substitute to some products, or some suppliers’

willingness or ability to serve some customers. Factors that may limit the geographic scope of

the market include transportation costs (relative to the price of the good), language, regulation,

tariff and non-tariff trade barriers, custom and familiarity, reputation, and local service

availability.

Geographic Markets Based on the Locations of Suppliers

The Agencies sometimes define geographic markets as regions encompassing a group of

supplier locations. When they do, the geographic market’s scope is determined by customers’

willingness to switch between suppliers. Geographic markets of this type often apply when

customers receive goods or services at suppliers’ facilities, for example when customers buy inperson from retail stores. A single firm may offer the same product in a number of locations,

both within a single geographic market or across geographic markets; customers’ willingness to

substitute between products may depend on the location of the supplier. When calculating market

shares, sales made from supplier locations in the geographic market are included, regardless of

whether the customer making the purchase travelled from outside the boundaries of the

geographic market (see Appendix 4 for more detail about calculating market shares).

If the HMT is used to evaluate the geographic scope of the market, it requires that a

hypothetical profit-maximizing firm that was the only present or future supplier of the relevant

product(s) at supplier locations in the region likely would undertake at least a SSNIPT in at least

one location. In this exercise, the terms of sale for products sold to all customers at facilities

outside the region are typically held constant.8

Geographic Markets Based on Targeting of Customers by Location

When targeting based on customer location is feasible (see Appendix 3.B.1), the

Agencies may define geographic markets as a region encompassing a group of customers.9 For

example, geographic markets may sometimes be defined this way when suppliers deliver their

products or services to customers’ locations, or tailor terms of trade based on customers’

locations. Competitors in the market are firms that sell to customers that are located in the

specified region. Some suppliers may be located outside the boundaries of the geographic

market, but their sales to customers located within the market are included when calculating

market shares (see Appendix 4 for more detail about calculating market shares).

In some circumstances, as when the merging parties operate in multiple geographies, if applying the HMT, the

Agencies may apply a “Hypothetical Cartel” framework for market definition, following the approach outlined in

Appendix 3A n.3.

For customers operating in multiple locations, only those customer locations within the targeted region are

included in the market.

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If prices are negotiated individually with customers that may be targeted, geographic

markets may be as narrow as individual customers. Nonetheless, the Agencies often define a

market for a cluster of customers located within a region if the conditions of competition are

reasonably similar for these customers. (See Appendix 3.B.4 for further discussion of cluster

markets.)

A firm’s attempt to target customers in a particular area with worsened terms can

sometimes be undermined if some customers in the region substitute by travelling outside it to

purchase the product. Arbitrage by customers on a modest scale may be possible but sufficiently

costly or limited that it would not deter or defeat a targeting strategy.10

If the HMT is used to evaluate market definition when customers may be targeted by

location, it requires that a hypothetical profit-maximizing firm that was the only present or future

seller of the relevant product(s) to customers in the region likely would undertake at least a

SSNIPT on some, though not necessarily all, customers in that region. The products sold in that

region form a relevant market if the hypothetical monopolist would undertake at least a SSNIPT

despite the potential for customers to substitute away from the product or to locations outside the

region. In this exercise, the terms of sale for products sold to all customers outside the region are

held constant.11

3. Supplier Responses

Market definition focuses solely on demand substitution factors, that is, on customers’

ability and willingness to substitute away from one product or location to another in response to

a price increase or other worsening of terms. Supplier responses may be considered in the

analysis of competition between firms (Guideline 2 and Appendix 2), entry and repositioning

(Section IV), and in calculating market shares and concentration (Appendix 4).

4. Cluster Markets

A relevant antitrust market is generally a group of products that are substitutes for each

other. However, when the competitive conditions for multiple antitrust markets are reasonably

similar, it may be appropriate to aggregate the products in these markets into a “cluster market”

for analytic convenience, even though not all products in the cluster are substitutes for each

other. For example, competing hospitals may each provide a wide range of acute health care

services. Acute care for one health issue is not a substitute for acute care for a different health

issue. Nevertheless, the Agencies may aggregate them into a cluster market for acute care

services if the conditions of competition are reasonably similar across the services in the cluster.

Arbitrage by suppliers is a type of supplier response and is thus not considered in market definition; see Appendix

3.B.3.

In some circumstances, as when the merging parties operate in multiple geographies, the Agencies may apply a

“Hypothetical Cartel” framework for market definition, as described in Appendix Footnote 2.

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The Agencies need not separately analyze market definition for each product included in

the cluster market, and market shares will typically be calculated for the cluster market as a

whole.

Analogously, the Agencies sometimes define a market as a cluster of targeted customers

(see Appendix 3.B.1) or a cluster of customers located in a region (see Appendix 3.B.2(b)).

5. Bundled Product Markets

Firms may sell a combination of products as a bundle or a “package deal,” rather than

offering products “a la carte,” that is, separately as standalone products. Different bundles

offered by the same or different firms might package together different combinations of

component products and therefore be differentiated according to the composition of the bundle.

If the components of a bundled product are also available separately, the bundle may be offered

at a price that represents a discount relative to the sum of the a la carte product prices.

The Agencies take a flexible approach based on the specific circumstances to determine

whether a candidate market that includes one or more bundled products, standalone products, or

both is a relevant antitrust market. In some cases, a relevant market may consist of only bundled

products. A market composed of only bundled products might be a relevant antitrust market even

if there is significant competition from the unbundled products. In other cases, a relevant market

may include both bundled products and some unbundled component products.

Even in cases where firms commonly sell combinations of products or services as a

bundle or a “package deal,” relevant antitrust markets do not necessarily include product

bundles. In some cases, a relevant market may be analyzed as a cluster market, as discussed in

Appendix 3.B.4.

6. One-Stop Shops in Markets

In some settings, the Agencies may consider a candidate market that includes one or

more “one-stop shops,” where customers can select a combination of products to purchase from

a single seller, either in a single purchase instance or in a sequence of purchases. Products are

commonly sold at a one-stop shop when customers value the convenience, which might arise

because of transaction costs or search costs, savings of time, transportation costs, or familiarity

with the store or web site.

A multi-product retailer such as a grocery store or online retailer is an example of a onestop shop. Customers can select a particular basket of groceries from a range of available goods

and different customers may select different baskets. Some customers may make multiple stops

at specialty shops (e.g., butcher, baker, green grocer), or they may do the bulk of their shopping

at a one-stop shop (the grocery store), but also shop at specialty shops for particular product

categories.

There are several ways in which markets may be defined in one-stop shop settings,

depending on market realities, and the Agencies may further define more than one antitrust

market for a particular merger. For example, a relevant market may consist of only one-stop

shops, even if there is significant competition from specialty shops; or it may include both onestop shops and specialty shops. When a product category is sold by both one-stop shops and

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specialty suppliers (such as a type of produce sold in grocery stores and produce stands), the

Agencies may define antitrust markets for the product category sold by a particular type of

supplier, or it may include multiple types of suppliers.

7. Market Definition When There is Harm to Innovation

When considering harm to competition in innovation, market definition may follow the

same approaches that are used to analyze other dimensions of competition. In the case where a

merger may substantially lessen competition by decreasing incentives for innovation, the

Agencies may define relevant antitrust markets around the products that would result from that

innovation, even if they do not yet exist. In some cases, the Agencies may analyze different

relevant markets when considering innovation than when considering other dimensions of

competition.

8. Market Definition for Input Markets and Labor Markets

The same market definition tools and principles discussed above can be used for input

markets and labor markets, where labor is a particular type of input. In input markets, firms

compete with each other to attract suppliers, including workers. Therefore, input suppliers are

analogous to customers in the discussions above about market definition. In defining relevant

markets, the Agencies focus on the alternatives available to input suppliers. An antitrust input

market consists of a group of products (goods or services) and a geographic area defined by the

location of the purchasers or input suppliers. Just as buyers of a product may consider products

to be differentiated according to the brand or the identity of the seller, suppliers of a product or

service may consider different buyers to be differentiated. For example, if the suppliers are

contractors, they may have distinct preferences about who they provide services to, due to

different working conditions, location, reliability of buyers in terms of paying invoices on time,

or the propensity of the buyer to make unexpected changes to specifications.

The HMT considers whether a hypothetical monopsonist likely would undertake a

SSNIPT, such as a reduction in price paid for inputs, or imposing less favorable terms on

suppliers. See Appendix 2.C for more discussion about competition in settings where terms are

set through auctions and negotiations, as is common for input markets.

When defining a market for labor the Agencies will consider the alternative job

opportunities available to workers who supply a relevant type of labor service, where worker

choice among jobs or between geographic areas is the analog of consumer choices among

products and regions when defining a product market. The Agencies may consider workers’

willingness to switch in response to changes to wages or other aspects of working conditions,

such as changes to benefits or other non-wage compensation, o

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