24 April 2010

Horizontal merger guidelines

The Antitrust Division of the US Justice Department and the Federal Trade Commission have recently released their proposed revisions to merger guidelines.

This seems to be an acknowledgement of the Whole Foods fiasco.

Briefly: these guidelines involve what are known as "horizontal mergers," i.e. mergers between two participants in the same market, dealing with the same suppliers and offering their product to the same customers. One of the common questions of controversy is: what does it mean to be in the "same" market exactly? Two gasoline retailers could argue that they are not in the same market for geographical reasons -- their service stations aren't directly across the street from one another. Or, two grocery stores that are across the street from one another could argue that they aren't in the same market for product reasons. One sells organic groceries, the other sells food processed and reinforced and otherwise chemically re-jiggered. Does that break the horizontal relationship? In either case, one has a "market definition" dispute.

Through the new rules, the agencies involved want to create a way of calculating the competitive effect of a merger without first defining the market involved. It wants to be able to skip that step.

The money quote may be found on p. 7: "Some of the analytical tools used by the Agencies to assess competitive effects do not rely on market definition, although evaluation of competitive alternatives available to customers is always necessary at some point in the analysis."

I have a personal fondness for antitrust, dating to my teenage years, so I won't give you the benefit of an Austrian/anarchistic deconstruction thereof now. I will say, though, that some of the comments that agencies are about to receive on these proposed revisions may make fascinating (though of course wonkish) reading.

Not the type of reading that they do at, say, the SEC of course. Nothing wonkish about those wild and crazy guys. I suppose all the porn they've reportedly been viewing leaves them incapable of understanding the economists' sense of the term "horizontal relationship."

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.