The new vertical merger guidelines: muddying the waters

The new Department of Justice and Federal Trade Commission Vertical Merger Guidelines focus attention on how vertical mergers are likely to affect static pricing incentives. In contrast, the section on vertical mergers in the Department of Justice’s 1984 Merger Guidelines, which the new Guidelines replace, place more emphasis on potential competition as a rationale for blocking vertical mergers. Even allowing for the possibility of raising rivals’ costs (which the successive monopoly model ignores), economic theory predicts that vertical mergers can provide incentives to lower all prices. Because of RRC, price increases are another possible consequence of a vertical merger, but which of the possible outcomes occurs depends on details that are likely to be difficult to measure. Potential competition between firms remains a more compelling rationale for blocking vertical mergers.First author draf