Commentary on the


Horizontal


Merger


Guidelines


U.S. Department of Justice Federal Trade Commission 

March 2006 
Table of Contents


Foreword ........................................................................ v 


Introduction ..................................................................... 1 


Governing Legal Principles ....................................................... 1 


Overview of Guidelines Analysis .................................................. 2 


The Agencies’ Focus Is on Competitive Effects .................................... 2 


Investigations Are Intensively Fact-Driven, Iterative Processes ...................... 3 


The Same Evidence Often Is Relevant to Multiple Elements of the Analysis ........... 3 


Commentary Outline ............................................................ 4 


1. Market Definition and Concentration ........................................... 5 


Mechanics of Market Definition ................................................... 5 


The Breadth of Relevant Markets .................................................. 6 


Evidentiary Sources for Market Definition .......................................... 9 


The Importance of Evidence from and about Customers ............................ 9 


Evidence of Effects May Be the Analytical Starting Point .......................... 10 


Industry Usage of the Word “Market” Is Not Controlling ......................... 11 


Market Definition and Integrated Analysis ......................................... 12 


Market Definition Is Linked to Competitive Effects Analysis ....................... 12 


Market Definition and Competitive Effects Analyses May Involve the Same Facts .... 14 


Integrated Analysis Takes into Account that Defined


Market Boundaries Are Not Necessarily Precise or Rigid ....................... 15 


Significance of Concentration and Market Share Statistics ............................ 15 


2. The Potential Adverse Competitive Effects of Mergers ......................... 17 


Coordinated Interaction ......................................................... 18 


Concentration ............................................................... 20 


Additional Market Characteristics Relevant to Competitive Analysis ............... 20 


Role of Evidence of Past Coordination .......................................... 22 


Maverick and Capacity Factors in Coordination .................................. 24 


Unilateral Effects ............................................................... 25 


Unilateral Effects from Merger to Monopoly ..................................... 26 


Unilateral Effects Relating to Capacity and Output for Homogeneous Products ...... 27 


Unilateral Effects Relating to Pricing of Differentiated Products .................... 27 


Unilateral Effects Relating to Auctions .......................................... 31 


Unilateral Effects Relating to Bargaining ........................................ 34 


iii
3. Entry Analysis ................................................................ 37 


Likelihood of Entry ............................................................. 38 


Sunk Costs and Risks Associated with Entry ..................................... 38 


Consumer Products ........................................................ 38 


Industrial Products ........................................................ 40 


Other Significant Obstacles to Successful Entry .................................. 42 


Cost Disadvantages of Entrants ................................................ 45 


Timeliness of Entry ............................................................. 45 


Sufficiency of Entry ............................................................. 46 


4. Efficiencies ................................................................... 49 


Efficiencies the Agencies Consider ................................................ 49 


Merger-Specific Efficiencies ................................................... 49 


Cognizable Efficiencies ....................................................... 51 


Verification of Efficiency Claims .................................................. 52 


Sufficiency of Efficiencies ........................................................ 55 


“Out-of-Market” Efficiencies ..................................................... 56 


Fixed-Cost Savings ............................................................. 57 


Supporting Documentation ...................................................... 59 


Referenced Agency Materials ....................................................... 61 


Case Index ....................................................................... 63 


U.S. Department of Justice Cases ................................................. 63 


Federal Trade Commission Cases ................................................. 66 


iv
Foreword


Mergers between competing firms, i.e., 

“horizontal” mergers, are a significant dynamic 

force in the American economy. The vast majority 

of mergers pose no harm to consumers, and many 

produce efficiencies that benefit consumers in the 

form of lower prices, higher quality goods or 

services, or investments in innovation. Efficiencies 

such as these enable companies to compete more 

effectively, both domestically and overseas. 

Fourteen years ago, to describe their 

application of the antitrust laws to horizontal 

mergers, the Federal Trade Commission and the 

U.S. Department of Justice (collectively, the 

“Agencies”)—the two federal Agencies 

responsible for U.S. antitrust law enforcement— 

jointly issued the 1992 Horizontal Merger 

Guidelines (the “Guidelines”). In 1997, the 

Agencies jointly issued revisions to the Guidelines’ 

section on Efficiencies. Since these publications 

were issued, the Agencies have consistently 

applied the Guidelines’ analytical framework to 

the horizontal mergers under their review. 

Today, to provide greater transparency and 

foster deeper understanding regarding antitrust 

law enforcement, the Agencies jointly issue this 

Commentary on the Guidelines. 

The Commentary continues the Agencies’ 

ongoing efforts to increase the transparency of 

their decision-making processes. These efforts 

include the Agencies’ joint publication of Merger 

Challenges Data, Fiscal Years 1999–2003 (issued 

December 18, 2003), the Commission’s subsequent 

publication of Horizontal Merger Investigation 

Data, Fiscal Years 1996–2003 (issued February 2, 

2004 and revised August 31, 2004), the 

Department’s Merger Review Process Initiative 

(issued October 12, 2001 and revised August 4, 

2004), the Reforms to the Merger Review Process 

at the Commission (issued February 16, 2006), and 

the Department’s and Commission’s increased use 

of explanatory closing statements following 

merger investigations. 

The Commentary follows on the Agencies’ 

February 2004 Merger Enforcement Workshop. 

Over three days, leading antitrust practitioners 

and economists who have examined merger policy 

and the Guidelines’ analytical framework 

discussed in detail all sections of the Guidelines. 

The Workshop focused on whether the analytical 

framework set forth by the Guidelines adequately 

serves the dual purposes of leading to appropriate 

enforcement decisions on proposed horizontal 

mergers, and providing the antitrust bar and the 

business community with reasonably clear 

guidance from which to assess the antitrust 

enforcement risks of proposed transactions. 

Workshop participants generally agreed that 

the analytical framework set out in the Guidelines 

is effective in yielding the right results in 

individual cases and in providing advice to parties 

considering a merger. Thus, the Agencies 

concluded that a revamping of the Guidelines is 

neither needed nor widely desired at this time. 

Rather, the Guidelines’ analytic framework has 

proved both robust and sufficiently flexible to 

allow the Agencies properly to account for the 

particular facts presented in each merger 

investigation. 

The Agencies also have observed that the 

antitrust bar and business community would find 

useful and beneficial an explication of how the 

Agencies apply the Guidelines in particular 

investigations. This Commentary is intended to 

respond to this important public interest by 

enhancing the transparency of the analytical 

process by which the Agencies apply the antitrust 

laws to horizontal mergers. 

Deborah Platt Majoras Thomas O. Barnett 

Chairman Assistant Attorney General for Antitrust 

Federal Trade Commission U.S. Department of Justice 

March 2006 

v
Introduction


Governing Legal Principles 

The principal federal antitrust laws applicable 

to mergers are section 7 of the Clayton Act, section 

1 of the Sherman Act, and section 5 of the Federal 

Trade Commission Act. Section 7 proscribes a 

merger the effects of which “may be substantially 

to lessen competition.” Section 1 prohibits an 

agreement that constitutes an unreasonable 

“restraint of trade.” Section 5, which the Federal 

Trade Commission enforces, proscribes “unfair 

methods of competition.” Over many decades, the 

federal courts have provided an expansive body of 

case law interpreting these statutes within the 

factual and economic context of individual cases. 

The core concern of the antitrust laws, 

including as they pertain to mergers between 

rivals, is the creation or enhancement of market 

power. In the context of sellers of goods or 

services, “market power” may be defined as the 

ability profitably to maintain prices above 

competitive levels for a significant period of time. 

Market power may be exercised, however, not 

only by raising price, but also, for example, by 

reducing quality or slowing innovation. In 

addition, mergers also can create market power on 

the buying side of a market. Most mergers 

between rivals do not create or enhance market 

power. Many mergers, moreover, enable the 

merged firm to reduce its costs and become more 

efficient, which, in turn, may lead to lower prices, 

higher quality products, or investments in 

innovation. However, the Agencies challenge 

mergers that are likely to create or enhance the 

merged firm’s ability—either unilaterally or 

through coordination with rivals—to exercise 

market power. 

Following their mandate under the antitrust 

statutory and case law, the Agencies focus their 

horizontal merger analysis on whether the 

transactions under review are likely to create or 

enhance market power. The Guidelines set forth 

the analytical framework and standards, 

consistent with the law and with economic 

learning, that the Agencies use to assess whether 

an anticompetitive outcome is likely. The unifying 

theme of that assessment is “that mergers should 

not be permitted to create or enhance market 

power or to facilitate its exercise.” Guidelines 

§ 0.1. The Guidelines are flexible, allowing the 

Agencies’ analysis to adapt as business practices 

and economic learning evolve. 

In applying the Guidelines to the transactions 

that each separately reviews, the Agencies strive 

to allow transactions unlikely substantially to 

lessen competition to proceed as expeditiously as 

possible. The Agencies focus their attention on 

quickly identifying those transactions that could 

violate the antitrust laws, subjecting those mergers 

to greater scrutiny. Most mergers that pose 

significant risk to competition come to the 

Agencies’ attention before they are consummated 

under the premerger notification and reporting 

requirements of the Hart-Scott-Rodino Antitrust 

Improvements Act of 1976, 15 U.S.C. § 18a 

(“HSR”). HSR requires that the parties to a 

transaction above a certain size notify the 

Agencies before consummation and prohibits 

consummation of the transaction until expiration 

of one or more waiting periods during which one 

of the Agencies reviews the transaction. The 

waiting periods provide the Agencies time to 

review a transaction before consummation. 

For more than 95% ofthe transactions reported 

under HSR, the Agencies promptly determine— 

i.e., within the initial fifteen- or thirty-day waiting 

period that immediately follows HSR filings—that 

a substantial lessening of competition is unlikely. 

The Agencies base such expeditious 

determinations on material provided as part ofthe 

HSR notification, experience from prior 

investigations, and other market information. For 

many industries, a wealth of information is 

available from government reports, trade 
directories and publications, and Internet 

resources. For some transactions, the parties 

volunteer additional information, and for some, 

the Agencies obtain information from non-public 

sources. The most important non-public sources 

are market participants, especially the parties’ 

customers, who typically provide information 

voluntarily when the Agencies solicit their 

cooperation. 

Evidence that the merged firm would have a 

relatively high share of sales (or of capacity, or of 

units, or of another relevant basis for 

measurement) or that the market is relatively 

highly concentrated may be particularly 

significant to a decision by either of the Agencies 

to extend a pre-merger investigation pursuant to 

HSR by issuing a request for additional 

information (commonly referred to as a “second 

request”). A decision to issue a second request 

must be made within the initial HSR thirty-day 

waiting period (fifteen days for cash tender 

offers), or the parties will no longer be prevented 

under HSR from consummating their merger. A 

second request may be necessary when it is not 

possible within thirty days to gather and analyze 

the facts necessary to address appropriately the 

competitive concerns that may arise at the 

threshold of the investigation, such as when 

parties to a merger appear to have relatively high 

shares in the market or markets in which they 

compete. Although the ultimate decision of 

whether a merger likely will be anticompetitive is 

based heavily on evidence of potential 

anticompetitive effects, the Agencies find that only 

in extraordinary circumstances can they conduct 

an extensive competitive effects analysis within 

thirty days. That is why market shares and 

concentration levels, which have some predictive 

value, frequently are used as at least a starting 

point during the initial waiting period. 

Sometimes the Agencies also investigate 

consummated mergers, especially when evidence 

suggests that anticompetitive effects may have 

resulted from them. The Agencies apply 

Guidelines analysis to consummated mergers as 

well as to mergers under review pursuant to HSR. 

Overview of Guidelines Analysis 

The Guidelines’ five-part organizational 

structure has become deeply embedded in 

mainstream merger analysis. These parts are: (1) 

market definition and concentration; (2) potential 

adverse competitive effects; (3) entry analysis; (4) 

efficiencies; and (5) failing and exiting assets. 

Each of the Guidelines’ sections identifies a 

distinct analytical element that the Agencies apply 

in an integrated approach to merger review. The 

ordering of these elements in the Guidelines, 

however, is not itself analytically significant, 

because the Agencies do not apply the Guidelines 

as a linear, step-by-step progression that 

invariably starts with market definition and ends 

with efficiencies or failing assets. Analysis of 

efficiencies, for example, does not occur “after” 

competitive effects or market definition in the 

Agencies’ analysis of proposed mergers, but rather 

is part of an integrated approach. If the conditions 

necessary for an anticompetitive effect are not 

present—for example, because entry would 

reverse that effect before significant time 

elapsed—the Agencies terminate their review 

because it would be unnecessary to address all of 

the analytical elements. 

The chapters that follow, in the context of 

specific analytical elements such as market 

definition or entry, describe many principles of 

Guidelines analysis that the Agencies apply in the 

course of investigating mergers. Three significant 

principles are generally applicable throughout. 

The Agencies’ Focus Is on 

Competitive Effects 

The Guidelines’ integrated process is “a tool 

that allows the Agency to answer the ultimate 

inquiry in merger analysis: whether the merger is 

likely to create or enhance market power or 

facilitate its exercise.” Guidelines § 0.2. At the 

center of the Agencies’ application of the 

Guidelines, therefore, is competitive effects 

analysis. That inquiry directly addresses the key 

question that the Agencies must answer: Is the 

merger under review likely substantially to lessen 

competition? To this end, the Agencies examine 

whether the merger of two particular rivals 

matters, that is, whether the merger is likely to 

affect adversely the competitive process, resulting 

in higher prices, lower quality, or reduced 

innovation. 

The Guidelines identify two broad analytical 

frameworks for assessing whether a merger 

between competing firms may substantially lessen 

competition. These frameworks require that the 

2
Agencies ask whether the merger may increase 

market power by facilitating coordinated 

interaction among rival firms and whether the 

merger may enable the merged firm unilaterally to 

raise price or otherwise exercise market power. 

Together, these two frameworks are intended to 

embrace every competitive effect of any form of 

horizontal merger. The Guidelines were never 

intended to detail how the Agencies would assess 

every set of circumstances that a proposed merger 

may present. As the Guidelines themselves note, 

the specific standards set forth therein must be 

applied to a broad range of possible factual 

circumstances. 

Investigations Are Intensively 

Fact-Driven, Iterative Processes 

Merger analysis depends heavily on the 

specific facts of each case. At the outset of an 

investigation, when Agency staff may know 

relatively little about the merging firms, their 

products, their rivals, or the applicable relevant 

markets, staff typically contemplates several broad 

hypotheses of possible harm. 

For example, based on initial information, staff 

may hypothesize that a merger would reduce the 

number of competitors from four to three and, in 

so doing, may foster or enhance coordination by 

enabling the remaining firms profitably to allocate 

customers based on prior sales. Staff also might 

hypothesize that the products of the merging firms 

are particularly close substitutes with respect to 

product characteristics or geographic location such 

that unilateral anticompetitive effects are likely. 

Staff evaluates potential competitive factors of 

this sort by gathering additional information and 

conducting intensive factual analysis to assess 

both the applicability of individual analytical 

frameworks and their implications for the likely 

competitive effects of the merger. As it learns 

more about the merging firms and the market 

environment in which they compete, staff rejects 

or refines its hypotheses of probable relevant 

markets and competitive effects, ultimately 

resulting in a conclusion about likelihood of harm. 

If the facts do not point to such a likelihood, the 

merger investigation is closed. 

In testing a particular postulated risk of 

competitive harm arising from a merger, the 

Agencies take into account pertinent 

characteristics of the market’s competitive process 

using data, documents, and other information 

obtained from the parties, their competitors, their 

customers, databases of various sorts, and 

academic literature or private industry studies. 

The Agencies carefully consider the views of 

informed customers on market structure, the 

competitive process, and anticipated effects from 

the merger. The Agencies further consider any 

information voluntarily provided by the parties, 

which may include extensive analyses prepared 

by economists or in consultation with economists. 

The Agencies also carefully consider prospects for 

efficiencies that the proposed transaction may 

generate and evaluate the effects of any 

efficiencies on the outcome of the competitive 

process. 

The Same Evidence Often Is Relevant 

to Multiple Elements of the Analysis 

A single piece of evidence often is relevant to 

several issues in the assessment of a proposed 

merger. For example, mergers frequently occur in 

markets that have experienced prior mergers. 

Sometimes evidence exists concerning the effects 

of prior mergers on various attributes of 

competition. Such evidence may be probative, for 

example, of the scope of the relevant product and 

geographic markets, of the likely competitive 

effects of the proposed merger, and of the 

likelihood that entry would deter or counteract 

any attempted exercise of market power following 

the merger under review. Similarly, evidence of 

actual or likely anticompetitive effects from a 

merger could be used in addressing the scope of 

the market or entry conditions. 

An investigation involving potential 

coordinated effects may uncover evidence of past 

collusion and sustained supra-competitive prices 

in the market. This information can be relevant to 

several elements of the analysis. The product and 

geographic markets that were subject to collusion 

in the past may be probative of the relevant 

product and geographic markets today. That 

entry failed to undermine collusion in the past 

may be probative of whether entry is likely today. 

Of course, during its investigation, the Agency 

may discover facts that tend to negate these 

possibilities. For example, since collusion 

occurred, new production technologies may have 

emerged that have altered the ability or incentives 

of firms to coordinate their actions. Similarly, 

innovation may have led to the introduction of 

3
new products that compete with the incumbent 

products and constrain the ability of the merging 

firms and their rivals to coordinate successfully in 

the future. 

Commentary Outline 

In the chapters that follow, the Commentary 

explains how the Agencies have applied particular 

Guidelines’ provisions relating to market 

definition and concentration, competitive effects 

(including coordinated interaction and unilateral 

effects analysis), entry conditions, and efficiencies. 

Application of the Guidelines’ provisions relating 

to failure and exiting assets is not discussed in the 

Commentary because those provisions are very 

infrequently applied. For convenience, the order 

of these chapters follows the order of the issues set 

forth in the Guidelines. 

Included throughout the Commentary are 

short summaries of matters that the Agencies have 

investigated. They have been included to further 

understanding of the principles under discussion 

at that point in the narrative. None of the 

summaries exhaustively addresses all the 

pertinent facts or issues that arose in the 

investigation. No other significance should be 

attributed to the selection of the matters used as 

examples. (In some instances in the Efficiencies 

chapter, names and other key facts of actual 

matters are changed to protect the confidentiality 

of business and proprietary information. Each is 

noted as a “Disguised Example.”) An Index at the 

end of the Commentary lists all of the mergers 

discussed in these case examples and provides 

citations to additional public information. 

For the reader’s convenience, the case 

examples briefly state how each investigation 

ended, i.e., whether it was closed because the 

Agency determined not to challenge the merger or 

because the parties abandoned the merger in 

response to imminent Agency challenge, or 

whether the investigation proceeded to a consent 

agreement or to litigation. The discussion within 

each case example pertains solely to the relevant 

Agency’s analysis of the merger, and does not 

elaborate on any subsequent judicial or 

administrative proceedings. 

4
1. Market Definition and


Concentration


The Agencies evaluate a merger’s likely 

competitive effects “within the context of 

economically significant markets—i.e., markets 

that could be subject to the exercise of market 

power.” Guidelines § 1.0. The purpose of merger 

analysis under the Guidelines is to identify those 

mergers that are likely to create or enhance market 

power in any market. The Agencies therefore 

examine all plausible markets to determine 

whether an adverse competitive effect is likely to 

occur in any of them. The market definition 

process is not isolated from the other analytic 

components in the Guidelines. The Agencies do 

not settle on a relevant market definition before 

proceeding to address other issues. Rather, 

market definition is part of the integrated process 

by which the Agencies apply Guidelines 

principles, iterated as new facts are learned, to 

reach an understanding of the merger’s likely 

effect on competition. 

The mechanics of how the Agencies define 

markets using the Guidelines methodhas been the 

subject of extensive discussion in legal and 

economic literature and appears to be well 

understood in the antitrust community. This 

Commentary, accordingly, provides only a brief 

overview of the mechanics. The remainder of this 

chapter addresses a number of discrete topics 

concerning market definition issues that 

frequently arise in merger investigations. 

Mechanics of Market Definition 

The Guidelines define a market as “a product 

or group of products and a geographic area in 

which it is produced or sold such that a 

hypothetical profit-maximizing firm, not subject to 

price regulation, that was the only present and 

future producer or seller of those products in that 

area likely would impose at least a ‘small but 

significant and nontransitory’ increase in price, 

assuming the terms of sale of all other products 

are held constant.” Guidelines § 1.0. 

This approach to market definition is referred 

to as the “hypothetical monopolist” test. To 

determine the effects of this “‘small but significant 

and nontransitory’ increase in price” (commonly 

referred to as a “SSNIP”), the Agencies generally 

use a price increase of five percent. This test 

identifies which product(s) in which geographic 

locations significantly constrain the price of the 

merging firms’ products. 

The Guidelines’ method for implementing the 

hypothetical monopolist test starts by identifying 

each product produced or sold by each of the 

merging firms. Then, for each product, it 

iteratively broadens the candidate market by 

adding the next-best substitute. A relevant 

product market emerges as the smallest group of 

products that satisfies the hypothetical monopolist 

test. Product market definition depends critically 

upon demand-side substitution—i.e., consumers’ 

willingness to switch from one product to another 

in reaction to price changes. The Guidelines’ 

approach to market definition reflects the 

separation of demand substitutability from supply 

substitutability—i.e., the ability and willingness, 

given existing capacity, of firms to substitute from 

making one product to producing another in 

reaction to a price change. Under this approach, 

demand substitutability is the concern of market 

delineation, while supply substitutability and 

entry are concerned with current and future 

market participants. 

Definition of the relevant geographic market is 

undertaken in much the same way as product 

market definition—by identifying the narrowest 

possible market and then broadening it by 

5
iteratively adding the next-best substitutes. Thus, 

for geographic market definition, the Agencies 

begin with the area(s) in which the merging firms 

compete respecting each relevant product, and 

extend the boundaries of those areas until an area 

is determined within which a hypothetical 

monopolist would raise prices by at least a small 

but significant and non-transitory amount. 

DaVita–Gambro (FTC 2005) DaVita Inc., 

proposed to acquire Gambro Healthcare, Inc. 

The firms competed across the United States in 

the provision of outpatient dialysis services for 

persons with end stage renal disease (“ESRD”). 

Commission staff found that the relevant 

geographic markets within which to analyze 

the transaction’s likely competitive effects were 

local. Most ESRD patients receive treatments 

about 3 times per week, in sessions lasting 3–5 

hours, and in general either are unwilling or 

unable to travel more than 30 miles or 30 

minutes to receive kidney dialysis treatment. 

In the process of defining the geographic 

market, staff identified the Metropolitan 

Statistical Areas (“MSAs”) within which both 

firms had outpatient dialysis clinics, then 

examined each area to determine if geographic 

factors such as mountains, rivers, and bays, 

and travel conditions, were such that the scope 

ofthe relevant market differed from the MSA’s 

boundaries. 

Within each such MSA, staff isolated the 

area immediately surrounding each dialysis 

clinic of both merging parties, and assessed 

whether a hypothetical monopolist within that 

area would impose a significant price increase. 

Staff expanded the boundaries of each area 

until the evidence showed that such a 

hypothetical monopolist would impose a 

significant price increase. From interviews 

with industry participants and analysis of 

documents, staff found that, in general, 

dialysis patients tend to travel greater 

distances in rural and suburban areas than in 

dense urban areas, where travel distances as 

small as 5–10 miles may take significantly more 

than 30 minutes, due to congestion, road 

conditions, reliance on public transportation, 

and other factors. Maps indicating the 

locations from which each clinic drew its 

patients were particularly useful. Thus, some 

MSAs included within their respective 

boundaries many distinct areas over which a 

hypothetical monopolist would exercise 

market power. The Commission entered into 

a consent agreement with the parties to resolve 

the concern that the transaction would likely 

lead to anticompetitive effects in 35 local 

markets. In an order issued with the consent 

agreement, the Commission required, among 

other things, the divestiture of dialysis clinics 

in the 35 markets at issue. 

The Breadth of Relevant Markets 

Defining markets under the Guidelines’ 

method does not necessarily result in markets that 

include the full range of functional substitutes 

from which customers choose. That is because, as 

the Guidelines provide, a “relevant market is a 

group of products and a geographic area that is no 

bigger than necessary to satisfy [the hypothetical 

monopolist] test.” Guidelines § 1.0. This is one of 

several points at which the Guidelines articulate 

what is referred to in section 1.21 as the “‘smallest 

market’ principle” for determining the relevant 

market. The Agencies frequently conclude that a 

relatively narrow range of products or geographic 

space within a larger group describes the 

competitive arena within which significant 

anticompetitive effects are possible. 

Nestle–Dreyer’s (FTC 2003) Nestle Holdings, 

Inc., proposed to merge with Dreyer’s Grand 

Ice Cream, Inc. The firms were rivals in the 

sale of superpremium ice cream. Ice cream is 

differentiated on the basis of the quality of 

ingredients. Compared to premium and nonpremium ice cream, superpremium ice cream 

contains more butterfat, less air, and more 

costly ingredients. Superpremium ice cream 

sells at a substantially higher price than 

premium ice cream. Using scanner data, 

Commission staff estimated demand 

elasticities for the superpremium, premium, 

and economy ice cream segments. Staff’s 

analysis showed that a hypothetical 

monopolist of superpremium ice cream would 

increase prices significantly. This, together 

with other documentary and testimonial 

evidence, indicated that the relevant market in 

which to analyze the transaction was 

superpremium ice cream. The Commission 

entered into a consent agreement with the 

merging firms, requiring divestiture of two 

6
brands and of key distribution assets. 

UPM–MACtac (DOJ 2003) UPM-Kymmene 

Oyj sought to acquire (from Bemis Co.) 

Morgan Adhesives Co. (“MACtac”). They 

were two of the three largest producers of 

paper pressure-sensitive labelstock, from 

which “converters” make pressure-sensitive 

labels. End users peel pressure-sensitive labels 

off a silicon-coated base material and directly 

apply them to items being labeled. The 

Department challenged the acquisition on the 

basis of likely anticompetitive effects in two 

relevant product markets. One was paper 

labelstock used to make pressure sensitive 

labels for “variable information printing” 

(“VIP”). Some or all of the printing on VIP 

labels is done by end users as the label is 

applied. A familiar example is the price 

labeling of fresh meat sold in supermarkets. 

Although paper labelstock for VIP labels 

competes with plastic film labelstock, the 

Department found that film labels are of 

sufficiently higher cost that a hypothetical 

monopolist of paper labelstock for VIP labels 

would raise price significantly. The other 

relevant product market was paper labelstock 

used for “prime” labels. Prime labels are used 

for product identification and are printed in 

advance of application. Paper labelstock for 

prime labels, competes not just with film 

labelstock, but also with pre-printed packaging 

and other means of product identification. 

Nevertheless, the Department found that a 

hypothetical monopolist of paper labelstock for 

prime labels would raise price significantly 

because users of pressure-sensitive paper 

labels find them the least-cost alternative for 

their particular applications and because they 

would have to incur significant switching costs 

if they adopted an alternative means of 

product identification. After trial, the court 

enjoined the consummation of the acquisition. 

Tenet–Slidell (FTC 2003) Tenet Health Care 

Systems owned a hospital in Slidell, Louisiana 

(near New Orleans), and proposed to acquire 

Slidell’s only other full-service hospital. There 

were many other full-service hospitals in the 

New Orleans area but all were outside of 

Slidell. Commission staff found that a 

significant number of Slidell residents and 

their employers required access to either of the 

two Slidell hospitals in their private health 

insurance plans. The Slidell hospitals 

competed against each other for inclusion in 

health plan networks. After merging, the 

combined hospital would have had no rival 

with “must have” network status among 

Slidell residents and employers. A 

hypothetical monopolist of the Slidell hospitals 

likely would have imposed a small but 

significant and non-transitory price increase on 

health plans selling coverage in Slidell, because 

neighboring hospitals outside of Slidell were 

not effective substitutes for network inclusion. 

The relevant geographic market, therefore, was 

limited to hospitals located in Slidell. Under 

Louisiana law, proposed acquisitions of notfor-profit hospitals must be approved by the 

Louisiana Attorney General. By invitation of 

the state Attorney General, Commission staff, 

in a public letter authorized by the 

Commission, advised the Attorney General of 

the staff’s view that, based on the facts 

gathered in its then-ongoing investigation, the 

proposed acquisition raised serious 

competitive concerns. In a vote authorized by 

local law, parish residents subsequently 

rejected the proposed transaction, which never 

was consummated. 

In sections 1.12 and 1.22, the Guidelines 

explain that the Agencies may define relevant 

markets on the basis of price discrimination if a 

hypothetical monopolist likely would exercise 

market power only, or especially, in sales to 

particular customers or in particular geographic 

areas. The Agencies address the same basic issues 

for any form of discrimination: Would price 

discrimination, if feasible, permit a significantly 

greater exercise of market power? Could 

competitors successfully identify the transactions 

to be discriminated against? Would customers or 

third parties be able to undermine substantially 

the discrimination through some form of arbitrage 

in which a product sold at lower prices to some 

customer groups is resold to customer groups 

intended by the firms to pay higher prices? In 

cases in which a hypothetical monopolist is likely 

to target only a subset of customers for 

anticompetitive price increases, the Agencies are 

likely to identify relevant markets based on the 

ability of sellers to price discriminate. 

7
Quest–Unilab (FTC 2003) Quest Diagnostics, 

Inc. and Unilab Corp., the two leading 

providers of clinical laboratory testing services 

to physician groups in Northern California, 

proposed to merge. Their combined market 

share would have exceeded 70%; the next 

largest rival had a market share of 4%. Clinical 

laboratory testing services are marketed and 

sold to various groups of customers, including 

physicians, health insurers, and hospitals. 

Commission staff determined that purchasers 

of these services cannot economically resell 

them to other customers, and that suppliers of 

the services can potentially identify the 

competitive alternatives available to physician 

group customers according to the group’s base 

of physicians and geographic coverage. This 

information indicated that a hypothetical 

monopolist could discriminate on price among 

customer types. Suppliers’ ability to price 

discriminate, combined with the fact that some 

types of customers had few competitive 

alternatives to contracting with suppliers that 

had a network of locations, led staff to define 

markets based on customer categories. The 

Commission issued a complaint alleging that 

the transaction would lessen competition 

substantially in one of the customer categories: 

the provision of clinical laboratory testing 

services to physician groups in Northern 

California. An accompanying consent order 

required divestiture of assets used to provide 

clinical laboratory testing services to physician 

groups in Northern California. 

Ingersoll-Dresser–Flowserve (DOJ 2000) 

Flowserve Corp. agreed to acquire IngersollDresser Pump Co. Both firms produced a 

broad array of pumps used in industrial 

processes. The Department challenged the 

proposed acquisition on the basis of likely 

anticompetitive effects in “API 610” pumps, 

which are used by oil refineries, and pumps 

used in electric power plants. Both sorts of 

pumps are customized according to the 

specifications of the particular buyer and are 

sold through bidding mechanisms. 

Customization of the pumps made arbitrage 

infeasible. The Department concluded that the 

competition in each procurement was entirely 

distinct and therefore that each procurement 

took place in a separate and distinct relevant 

market. The Department’s challenge to the 

merger was resolved by consent decree. 

Interstate Bakeries–Continental (DOJ 1995) 

The Department challenged Interstate Bakeries 

Corp.’s purchase of Continental Baking Co. 

from Ralston Purina Co. The challenge 

focused on white pan bread, and the 

Department found that the purchase likely 

would have produced significant price 

increases in five metropolitan areas—Chicago, 

Milwaukee, Central Illinois, Los Angeles, and 

San Diego. Among the reasons the 

Department concluded that competition was 

localized to these metropolitan areas were that 

bakers charged different prices for the same 

brands produced in the same bakeries, 

depending on where the bread was sold, and 

that arbitrage was infeasible. Arbitrage was 

exceptionally costly because the bakers 

themselves placed their bread on the 

supermarket shelves, so arbitrage required 

removing bread from the shelves, reshipping 

it, and reshelving it. This process also would 

consume a significant portion of the brief 

period during which the bread is fresh. The 

Department settled its challenge to the 

proposed merger by a consent decree requiring 

divestiture of brands and related assets in the 

five metropolitan areas. 

The Guidelines indicate that the relevant 

market is the smallest collection of products and 

geographic areas within which a hypothetical 

monopolist would raise price significantly. At 

times, the Agencies may act conservatively and 

focus on a market definition that might not be the 

smallest possible relevant market. For example, 

the Agencies may focus initially on a bright line 

identifying a group of products or areas within 

which it is clear that a hypothetical monopolist 

would raise price significantly and seek to 

determine whether anticompetitive effects are—or 

are not—likely to result from the transaction in 

such a candidate market. If the answer for the 

broader market is likely to be the same as for any 

plausible smaller relevant market, there is no need 

to pinpoint the smallest market as the precise line 

drawn does not affect the determination of 

whether a merger is anticompetitive. Also, when 

the analysis is identical across products or 

geographic areas that could each be defined as 

separate relevant markets using the smallest 

market principle, the Agencies may elect to 

8
employ a broader market definition that 

encompasses many products or geographic areas 

to avoid redundancy in presentation. The 

Guidelines describe this practice of aggregation 

“as a matter of convenience.” Guidelines § 1.321 

n.14. 

Evidentiary Sources for 

Market Definition 

The Importance of Evidence 

from and about Customers 

Customers typically are the best source, and in 

some cases they may be the only source, of critical 

information on the factors that govern their ability 

and willingness to substitute in the event of a price 

increase. The Agencies routinely solicit 

information from customers regarding their 

product and supplier selections. In selecting their 

suppliers, customers typically evaluate the 

alternatives available to them and can often 

provide the Agencies with information on their 

functional needs as well as on the cost and 

availability of substitutes. Customers also provide 

relevant information that they uniquely possess on 

how they choose products and suppliers. In some 

investigations, customers provide useful 

information on how they have responded to 

previous significant changes in circumstances. In 

some investigations, the Agencies are able to 

explore consumer preferences with the aid of price 

and quantity data that allow econometric 

estimation of the relevant elasticities of demand. 

Dairy Farmers–SODIAAL (DOJ 2000) The 

Department challenged the proposed 

acquisition by Dairy Farmers of America, Inc. 

of SODIAAL North America Corp. on the basis 

of likely anticompetitive effects in the sale of 

“branded stick and whipped butter in the 

Philadelphia and New York metropolitan 

areas.” DFA sold the Breakstone brand, and 

SODIAAL sold the Keller’s and Hotel Bar 

brands. The Department concluded that 

consumers of branded butter in these 

metropolitan areas so preferred it over privatelabel butter, as well as margarine and other 

substitutes, that a hypothetical monopolist 

over just branded butter in each of those areas 

would raise price significantly. This 

conclusion was supported by econometric 

evidence, derived from data collected from 

supermarkets, on the elasticity of demand for 

branded butter in Philadelphia and New York. 

The Department’s complaint was resolved by 

a consent decree transferring the SODIAAL 

assets to a new company not wholly owned by 

DFA and containing additional injunctive 

provisions. 

In the vast majority of cases, the Agencies 

largely rely on non-econometric evidence, 

obtained primarily from customers and from 

business documents. 

Cemex–RMC (FTC 2005) The proposed 

acquisition of RMC Group PLC by Cemex, S.A. 

de C.V. would have combined two of the three 

independent ready-mix concrete suppliers in 

Tucson, Arizona. Ready-mix concrete is a 

precise mixture of cement, aggregates, and 

water. It is produced at local plants and 

delivered as a slurry in trucks with revolving 

drums to construction sites, where it is poured 

and formed into its final shape. Commission 

staff determined from information received 

from customers that a hypothetical monopolist 

over ready-mix concrete would raise price 

significantly in the relevant area. Asphalt and 

other building materials were found not to be 

good substitutes for ready-mix concrete, due in 

significant part to concrete’s pliability when 

freshly mixed and strength and permanence 

when hardened. Concerned that the 

transaction likely would result in coordinated 

interaction in the Tucson area, the 

Commission, pursuant to a consent agreement, 

ordered Cemex, among other things, to divest 

RMC’s Tucson-area ready-mix concrete assets. 

Swedish Match–National (FTC 2000) Swedish 

Match North America, Inc. proposed to acquire 

National Tobacco Company, L.P. The 

acquisition would have combined the first- and 

third-largest producers of loose leaf chewing 

tobacco in the United States. Commission staff 

evaluated whether, as the merging firms 

contended, moist snuff should be included in 

the relevant market for loose leaf chewing 

tobacco. Swedish Match’s own market 

research revealed that consumers would 

substitute less expensive loose leaf, but not 

more expensive snuff, if loose leaf prices 

increased slightly. Additional evidence from 

9
the firms’ own business documents, and 

customer testimony from distributors that 

purchase and resell the products to retailers, 

demonstrated that loose leaf chewing tobacco 

constitutes a distinct product market that does 

not include moist snuff. The acquisition would 

therefore have resulted in a merged firm with 

a high share of the relevant market for loose 

leaf chewing tobacco. The Commission 

successfully challenged the merger in federal 

district court. 

In determining whether to challenge a 

transaction, the Agencies do not simply tally the 

number of customers that oppose a transaction 

and the number of customers that support it. The 

Agencies take into account that all customers in a 

relevant market are not necessarily situated 

similarly in terms of their incentives. For example, 

intermediate resellers’ views about a proposed 

merger between two suppliers may be influenced 

by the resellers’ ability profitably to pass along a 

price increase. If resellers can profitably pass 

along a price increase, they may have no objection 

to the merger. End-users, by contrast, generally 

lack such an incentive because they must absorb 

higher prices. In all cases, the Agencies credit 

customer testimony only to the extent the 

Agencies conclude that there is a sound 

foundation for the testimony. 

Evidence of Effects May Be the 

Analytical Starting Point 

In some investigations, before having 

determined the relevant market boundaries, the 

Agencies may have evidence that more directly 

answers the “ultimate inquiry in merger analysis,” 

i.e., “whether the merger is likely to create or 

enhance market power or facilitate its exercise.” 

Guidelines § 0.2. Evidence pointing directly 

toward competitive effects may arise from 

statistical analysis of price and quantity data 

related to, among other things, incumbent 

responses to prior events (sometimes called 

“natural experiments”) such as entry or exit by 

rivals. For example, it may be that one of the 

merging parties recently entered and that 

econometric tools applied to pricing data show 

that the other merging party responded to that 

entry by reducing price by a significant amount 

and on a nontransitory basis while the prices of 

some other sellers that might be in the relevant 

market did not. 

To be probative, of course, such data analyses 

must be based on accepted economic principles, 

valid statistical techniques, and reliable data. 

Moreover, the Agencies accord weight to such 

analyses only within the context of the full 

investigatory record, including information and 

testimony received from customers and other 

industry participants and from business 

documents. 

Evidence pertaining more directly to a 

merger’s actual or likely competitive effects also 

may be useful in determining the relevant market 

in which effects are likely. Such evidence may 

identify potential relevant markets and 

significantly reinforce or undermine other 

evidence relating to market definition. 

Staples–Office Depot (FTC 1997) Staples, Inc. 

proposed to acquire Office Depot, Inc., a 

merger that would have combined two of the 

three national retail chains of office supply 

superstores. The Commission found that in 

metropolitan areas where Staples faced no 

office superstore rival, it charged significantly 

higher prices than in metropolitan areas where 

it faced competition from Office Depot or the 

other office supply superstore chain, 

OfficeMax. Office Depot data showed a 

similar pattern: its prices were lowest where 

Staples and OfficeMax also operated, and 

highest where they did not. These patterns 

held regardless of how many non-superstore 

sellers of office supplies operated in the 

metropolitan area under review. 

The Commission also found that evidence 

relating to entry showed that local rivalry from 

office supply superstores acted as the principal 

competitive constraint on Staples and Office 

Depot. Each firm regularly dropped prices in 

areas where they confronted entry by another 

office supply superstore, but did not do so in 

response to entry by other sellers of office 

supplies, such as Wal-Mart. Newspaper 

advertising and other promotional materials 

likewise reflected greater price competition in 

those areas in which Staples and Office Depot 

faced local rivalry from one another or from 

OfficeMax. Such evidence provided direct 

support for the conclusion that the acquisition 

would cause anticompetitive effects in the 

relevant product market defined as the sale of 

10
consumable office supplies through office 

supply superstores, in those metropolitan areas 

where Staples and Office Depot competed 

prior to the merger. The Commission 

successfully challenged the merger in federal 

district court. 

In some cases, competitive effects analysis may 

eliminate the need to identify with specificity the 

appropriate relevant market definition, because, 

for example, the analysis shows that 

anticompetitive effects are unlikely in any 

plausibly defined market. 

Federated–May (FTC 2005) Federated 

Department Stores, Inc. proposed to acquire 

The May Department Stores Co., thereby 

combining the two largest chains in the United 

States of so-called “traditional” or 

“conventional” department stores . 

Conventional department stores typically 

anchor enclosed shopping malls, feature 

products in the mid-range of price and quality, 

and sell a wide range of products. The 

transaction would create high levels of 

concentration among conventional department 

stores in many metropolitan areas of the 

United States, and the merged firm would 

become the only conventional department 

store at certain of the 1,200 malls in the United 

States. 

If the relevant product market included 

only conventional department stores, then 

before the merger Federated had a market 

share greater than 90% in the New York–New 

Jersey metropolitan area. If the relevant 

product market also included, for example, 

specialty stores, then Federated’s share in that 

geographic area was much smaller. The 

evidence that Commission staff obtained 

indicated that the relevant product market was 

broader than conventional department stores. 

For example, in the New York–New Jersey 

metropolitan area, Federated charged 

consumers the same prices that it charged 

throughout much of the eastern region of the 

United States, including where Federated 

faced larger numbers of traditional department 

store rivals. May and other department store 

chains, like Federated, also set prices to 

consumers that were uniform over very broad 

geographic areas and did not appear to vary 

local prices based on the number or identity of 

conventional department stores in malls or 

metropolitan areas. 

This evidence provided support for the 

conclusion that the acquisition likely would not 

create anticompetitive effects. Staff also found 

no evidence that competitive constraints, e.g., 

rivalry from retailers other than department 

stores, in New York–New Jersey were not 

representative of other markets in which 

Federated and May competed. Further, 

evidence pertaining both to which firms the 

parties monitored for pricing and to consumer 

purchasing behavior also supported the 

conclusion that the relevant market was 

sufficiently broad that the merger was not 

likely to cause anticompetitive effects. The 

Commission closed the investigation. 

Industry Usage of the Word 

“Market” Is Not Controlling 

Relevant market definition is, in the antitrust 

context, a technical exercise involving analysis of 

customer substitution in response to price 

increases; the “markets” resulting from this 

definition process are specifically designed to 

analyze market power issues. References to a 

“market” in business documents may provide 

important insights into the identity of firms, 

products, or regions that key industry participants 

consider to be sources of rivalry, which in turn 

may be highly probative evidence upon which to 

define the “relevant market” for antitrust 

purposes. The Agencies are careful, however, not 

to assume that a “market” identified for business 

purposes is the same as a relevant market defined 

in the context of a merger analysis. When 

businesses and their customers use the word 

“market,” they generally are not referring to a 

product or geographic market in the precise sense 

used in the Guidelines, although what they term 

a “market” may be congruent with a Guidelines’ 

market. 

Staples–Office Depot (FTC 1997) In the 

blocked Staples–Office Depot transaction 

described above in this Chapter, the 

Commission alleged, and the district court 

found, that the relevant product market was 

“the sale of consumable office supplies 

through office supply superstores,” with 

“consumable” meaning products that 

11
consumers buy recurrently, like pens, paper, 

and file folders. Industry members in the 

ordinary course of business did not describe 

the “market” using this phrase. The facts 

showed that a hypothetical monopolist office 

supply superstore would raise price 

significantly on consumable office supplies. 

Many retail firms that are not office supply 

superstores—such as discount and general 

merchandise stores—sold consumable office 

supplies in areas near the merging firms. 

Despite the existence of such other sellers, 

evidence, including the facts identified above, 

justified definition of the relevant product 

market as one limited to the sale of consumable 

office products solely through office supply 

superstores. 

It is unremarkable that “markets” in common 

business usage do not always coincide with 

“markets” in an antitrust context, inasmuch as the 

terms are used for different purposes. The 

description of an “antitrust market” sometimes 

requires several qualifying words and as such 

does not reflect common business usage of the 

word “market.” Antitrust markets are entirely 

appropriate to the extent that they realistically 

describe the range of products and geographic 

areas within which a hypothetical monopolist 

would raise price significantly and in which a 

merger’s likely competitive effects would be felt. 

Waste Management–Allied (DOJ 2003) Waste 

Management, Inc. agreed to acquire assets 

from Allied Waste Industries, Inc. that were 

used in its municipal solid waste collection 

operations in Broward County, Florida. The 

Department challenged the proposed 

acquisition on the basis of anticompetitive 

effects in “small container commercial 

hauling.” Commercial haulers serve customers 

such as office buildings, apartment buildings, 

and retail establishments. Small containers 

have capacities of 1–10 cubic yards, and waste 

from them is collected using specialized, frontend loading vehicles. The Department found 

that this market was separate and distinct from 

markets for other municipal solid waste 

collection services. The Department concluded 

that a hypothetical monopolist in just small 

container commercial hauling would have 

raised prices significantly because it was 

uneconomical for homeowners to use the much 

larger containers used by commercial 

customers and uneconomical for commercial 

customers using large “roll-off” containers to 

switch to small commercial containers. The 

Department’s challenge to the merger was 

resolved by a consent decree requiring 

divestiture of specified collection routes and 

the assets used on them. 

Pacific Enterprises–Enova (DOJ 1998) Pacific 

Enterprises (which owned Southern California 

Gas Co.) and Enova Corp. (which owned San 

Diego Gas & Electric Co.) agreed to combine 

the companies under a common holding 

company. The Department challenged the 

combination on the basis of likely 

anticompetitive effects arising from the ability 

of the combined companies to raise electricity 

prices by restricting the supply of natural gas. 

The Department concluded that the relevant 

market was the sale of electricity in California 

during periods of high demand. In highdemand periods, limitations on transmission 

capacity cause prices in California to be 

determined by power plants in California. 

Inter-temporal arbitrage was infeasible because 

there is only a very limited opportunity to 

store electric power. Thus, the Department 

concluded that a hypothetical electricity 

monopolist during just periods of high 

demand would raise prices significantly. The 

Department’s complaint was resolved by a 

consent decree requiring divestiture of 

generating facilities and associated assets. 

Market Definition and 

Integrated Analysis 

Market Definition Is Linked to 

Competitive Effects Analysis 

The process of defining the relevant market is 

directly linked to competitive effects analysis. In 

analyzing mergers, the Agencies identify specific 

risks of potential anticompetitive harm, and 

delineate the appropriate markets within which to 

evaluate the likelihood of such potential harm. 

This process could lead to different conclusions 

about the relevant markets likely to experience 

competitive harm for two similar mergers within 

the same industry. 

12
Thrifty–PayLess (FTC 1994) A proposed 

merger of Thrifty Drug Stores and PayLess 

Drug Stores would have combined retail drug 

store chains with store locations near one 

another in towns in California, Oregon, and 

Washington. Commission staff identified two 

potential anticompetitive effects from the 

merger: (1) that “cash” customers, i.e., 

individual consumers who pay out of pocket 

for prescription drugs, likely would pay higher 

prices; and (2) that third-party payers, such as 

health plans and pharmacy benefit managers 

(“PBMs”), likely would pay higher dispensing 

fees to chain pharmacy firms to obtain their 

participation in provider networks. 

Cash customers tend to shop close to home 

or place of employment, suggesting small 

geographic markets for those customers. 

Third-party payers need network participation 

from chains having wide territorial coverage. 

The staff assessed different relevant markets 

for the two risks of competitive harm. In its 

complaint accompanying a consent agreement, 

the Commission alleged that the sale of 

prescription drugs in retail stores (i.e., sales to 

cash customers) was a relevant product market 

and that anticompetitive effects from the 

merger were likely in this market. The 

Commission did not allege a diminution in 

competition regarding the process by which 

pharmacies negotiate for inclusion in health 

plan provider networks and sought no relief in 

that market. The Commission ordered Thrifty, 

among other things, to divest retail pharmacies 

in the geographic markets of concern. 

Rite Aid–Revco (FTC 1996) The nation’s two 

largest retail drug store chains, Rite Aid Corp. 

and Revco D.S., Inc., proposed to merge. They 

competed in many local markets, including in 

15 metropolitan areas in which the merged 

firm would have had more than 35% of the 

retail pharmacies. As in the foregoing 

Thrifty–PayLess matter, Commission staff 

defined two markets in which harm potentially 

may have resulted: retail sales made to cash 

customers, and sales through PBMs, which 

contract with multiple pharmacy firms to form 

networks offering pharmacy benefits as part of 

health insurance coverage. Pharmacy 

networks often include a high percentage of 

local pharmacies because access to many 

participating pharmacies is often important to 

plan enrollees. 

Rite Aid and Revco constrained one 

another’s pricing leverage with PBMs in 

bargaining for inclusion in PBM networks. 

Each merging firm offered rival broad local 

coverage of pharmacy locations, such that 

PBMs could assemble marketable networks 

with just one of the firms included. A high 

proportion of PBM plan enrollees would have 

considered the merged entity to be their 

preferred pharmacy chain, leaving PBMs with 

less attractive options for assembling networks 

that did not include the merged firm. This 

would have empowered the merged firm 

successfully to charge higher dispensing fees as 

a condition of participating in a network. 

Commission staff determined that the 

merger was likely substantially to lessen 

competition in the relevant market of sales to 

PBMs and similar customers who needed a 

network of pharmacies. The Commission 

voted to challenge the merger, stating that “the 

proposed Rite Aid-Revco merger is the first 

drug store merger where the focus has been on 

anticompetitive price increases to the growing 

numbers of employees covered by these 

pharmacy benefit plans, rather than 

exclusively focusing on the cash paying 

customer.” The parties subsequently 

abandoned the deal. 

Many mergers, in a wide variety of industries, 

potentially have effects in more than one relevant 

geographic market or product market and require 

independent competitive assessments for each 

market. 

Suiza–Broughton (DOJ 1998) The Department 

challenged the proposed acquisition of 

Broughton Foods Co. by Suiza Foods Corp. 

Suiza was a nationwide operator of milk 

processing plants with four dairies in Kentucky 

and Tennessee. Broughton operated two 

dairies, including the Southern Belle Dairy in 

Pulaski County, Kentucky. The two companies 

competed in the sale of milk and other dairy 

products to grocery stores, convenience stores, 

schools, and institutions. The Department’s 

investigation focused on schools, many of 

which require daily, or every-other-day, 

delivery. School districts procured the milk 

through annual contracts, each of which the 

13
Department found to be an entirely separate 

competition. Thus, the Department defined 55 

relevant markets, each consisting of a school 

district in south central Kentucky in which the 

proposed merger threatened competition. The 

Department’s complaint was resolved by a 

consent decree requiring divestiture of the 

Southern Belle Dairy. 

NAT, L.C.–D.R. Partners (DOJ 1995) The 

Department and private plaintiffs challenged 

the consummated acquisition of the Northwest 

Arkansas Times by interests owning the 

competing Morning News of Northwest Arkansas. 

The Department concluded that the acquisition 

likely would harm subscribers of these 

newspapers as well as local advertisers, and 

defined separate relevant markets for readers 

and local advertisers. The Department found 

that both markets included only daily 

newspapers because of unique characteristics 

valued by readers and local advertisers, and 

concluded that the acquisition likely would 

harm both groups of customers. The courts 

required rescission of the acquisition. 

Market Definition and 

Competitive Effects Analyses 

May Involve the Same Facts 

Often the same information is relevant to 

multiple aspects of the analysis. For example, 

regarding mergers that raise the concern that the 

merged firm would be able to exercise unilateral 

market power, the Agencies often use the same 

data and information both to define the relevant 

market and to ascertain whether the merger is 

likely to have a significant unilateral 

anticompetitive effect. 

General Mills–Pillsbury (FTC 2001) General 

Mills, Inc. proposed to acquire The Pillsbury 

Co. General Mills owned the Betty Crocker 

brand of pancake mix and the Bisquick brand 

of all-purpose baking mix, a product that can 

be used to make pancakes as well as other 

products. Pillsbury owned the Hungry Jack 

pancake mix brand. An issue was whether the 

relevant product market for pancake mixes 

included Bisquick. General Mills’ Betty 

Crocker pancake mix had a relatively small 

share of a candidate pancake mix market that 

excluded Bisquick, suggesting that the merger 

likely would not raise significant antitrust 

concerns in the candidate pancake mix market 

should the relevant market exclude Bisquick. 

In addition to obtaining information from 

industry documents and interviews with 

industry participants on the correct contours of 

the relevant product market, FTC staff 

analyzed scanner data to address whether 

Bisquick competed with pancake mixes. 

Demand estimation revealed significant crossprice elasticities of demand between Bisquick 

and most of the individual pancake mix 

brands, suggesting that Bisquick competed in 

the same relevant market as pancake mixes. 

Merger simulation based on the elasticities 

calculated from the scanner data showed that 

if General Mills acquired Pillsbury it likely 

would unilaterally raise prices. All of the 

evidence taken togetherfurther confirmed that 

Pillsbury’s Hungry Jack and Bisquick were 

significant substitutes, and the staff concluded 

that the relevant market included both pancake 

mixes and Bisquick. The parties resolved the 

competitive concerns in this market by selling 

Pillsbury’s baking product line. No 

Commission action was taken. 

Interstate Bakeries–Continental (DOJ 1995) 

The Department challenged Interstate Bakeries 

Corp.’s purchase of Continental Baking Co. 

from Ralston Purina Co. on the basis of likely 

unilateral effects in the sale of white pan bread. 

Econometric analysis determined that there 

were substantial cross-elasticities of demand 

between the Continental and Interstate brands 

of white pan bread. The Department used the 

estimated cross-elasticities in a merger 

simulation, which predicted that the merger 

was likely to result in price increases for those 

brands of 5–10%. The data used to estimate 

these elasticities also were used to estimate the 

elasticity of demand for white pan bread in the 

aggregate and for just “premium” brands of 

white pan bread. The latter estimation 

indicated that the relevant market was no 

broader than all white pan bread, despite some 

limited competition from other bread products 

and other sources of carbohydrates. The 

Department’s challenge to the proposed 

merger was settled by a consent decree 

requiring divestiture of brands and related 

assets in the five metropolitan areas. 

14
Integrated Analysis Takes into 

Account that Defined Market 

Boundaries Are Not Necessarily 

Precise or Rigid 

For mergers involving relatively homogeneous 

products and distinct, identifiable geographic 

areas, with no substitute products or locations just 

outside the market boundaries, market definition 

is likely to be relatively easy and uncontroversial. 

The boundaries of a market are less clear-cut in 

merger cases that involve products or geographic 

areas for which substitutes exist along a 

continuum. The simple dichotomy of “in the 

market” or “out of the market” may not 

adequately capture the competitive interaction 

either of particularly close substitutes or of 

relatively distant substitutes. 

Even when no readily apparent gap exists in 

the chain of substitutes, drawing a market 

boundary within the chain may be entirely 

appropriate when a hypothetical monopolist over 

just a segment of the chain of substitutes would 

raise prices significantly. Whenever the Agencies 

draw such a boundary, they recognize and 

account for the fact that an increase in prices 

within just that segment could cause significant 

sales to be lost to products or geographic areas 

outside the segment. Although these lost sales 

may be insufficient to deter a hypothetical 

monopolist from raising price significantly, 

combined with other factors, they may be 

sufficient to make anticompetitive effects an 

unlikely result of the merger. 

Significance of Concentration 

and Market Share Statistics 

Section 2 of the Guidelines explains that 

“market share and concentration data provide 

only the starting point for analyzing the 

competitive impact of a merger.” Indeed, the 

Agencies do not make enforcement decisions 

solely on the basis of market shares and 

concentration, but both measures nevertheless 

play an important role in the analysis. A merger 

in an industry in which all participants have low 

shares—especially low shares in all plausible 

relevant markets—usually requires no significant 

investigation, because experience shows that such 

mergers normally pose no real threat to lessen 

competition substantially. For example, if the 

merging parties are small producers of a 

homogeneous product, operating in a geographic 

area where many other producers of the same 

homogeneous product also are located, the 

Agencies may conclude that the merger likely 

raises no competition concerns without ever 

determining the precise contours of the market. 

By contrast, mergers occurring in industries 

characterized by high shares in at least one 

plausible relevant market usually require 

additional analysis and consideration of factors in 

addition to market share. 

Section 1.51 of the Guidelines sets out the 

general standards, based on market shares and 

concentration, that the Agencies use to determine 

whether a proposed merger ordinarily requires 

further analysis. The Agencies use the 

Herfindahl-Hirschman Index (“HHI”), which is 

the sum of the squares of the market shares of all 

market participants, as the measure of market 

concentration. In particular, the Agencies rely on 

the “change in the HHI,” which is twice the 

product of the market shares of the merging firms, 

and the “post-merger HHI,” which is the HHI 

before the merger plus the change in the HHI. 

Section 1.51 sets out zones defined by the HHI and 

the change in the HHI within which mergers 

ordinarily will not require additional analysis. 

Proposed mergers ordinarily require no further 

analysis if (a) the post-merger HHI is under 1000; 

(b) the post-merger HHI falls between 1000 and 

1800, and the change in the HHI is less than 100; 

or (c) the post-merger HHI is above 1800, and the 

change in the HHI is less than 50. 

The Agencies’ joint publication of Merger 

Challenges Data, Fiscal Years 1999–2003 (issued 

December 18, 2003), and the Commission’s 

publication of Horizontal Merger Investigation 

Data, Fiscal Years 1996–2003 (issued February 2, 

2004 and revised August 31, 2004), document that 

the Agencies have often not challenged mergers 

involving market shares and concentration that 

fall outside the zones set forth in Guidelines 

section 1.51. This does not mean that the zones are 

not meaningful, but rather that market shares and 

concentration are but a “starting point” for the 

analysis, and that many mergers falling outside 

these three zones nevertheless, upon full 

consideration of the factual and economic 

evidence, are found unlikely substantially to 

lessen competition. Application of the Guidelines 

as an integrated whole to case-specific facts—not 

15
undue emphasis on market share and 

concentration statistics—determines whether the 

Agency will challenge a particular merger. As 

discussed in section 1.521 of the Guidelines, 

historical market shares may not reflect a firm’s 

future competitive significance. 

Boeing–McDonnell Douglas (FTC 1997) The 

Boeing Co., the world’s largest producer of 

large commercial aircraft with 60% of that 

market, proposed to acquire McDonnell 

Douglas Corp., which through Douglas 

Aircraft had a share of nearly 5% in that 

market. Airbus S.A.S. was the only other 

significant rival, and obstacles to entry were 

exceptionally high. Although McDonnell 

Douglas was not a failing firm, staff 

determined that McDonnell Douglas’ 

significance as an independent supplier of 

commercial aircraft had deteriorated to the 

point that it was no longer a competitive 

constraint on the pricing of Boeing and Airbus 

for large commercial aircraft. Many 

purchasers of aircraft indicated that McDonnell 

Douglas’ prospects for future aircraft sales 

were close to zero. McDonnell Douglas’ 

decline in competitive significance stemmed 

from the fact that it had not made the 

continuing investments in new aircraft 

technology necessary to compete successfully 

against Boeing and Airbus. Staff’s 

investigation failed to turn up any evidence 

that this situation could be expected to be 

reversed. The Commission closed the 

investigation without taking any action. 

Indeed, market concentration may be 

unimportant under a unilateral effects theory of 

competitive harm. As discussed in more detail in 

Chapter 2’s discussion of Unilateral Effects, the 

question in a unilateral effects analysis is whether 

the merged firm likely would exercise market 

power absent any coordinated response from rival 

market incumbents. The concentration of the 

remainder of the market often has little impact on 

the answer to that question. 

16
2. The Potential Adverse


Competitive Effects of Mergers


Section 2 of the Guidelines identifies two broad 

analytical frameworks for assessing whether a 

merger between rival firms may substantially 

lessen competition: “coordinated interaction” and 

“unilateral effects.” A horizontal merger is likely 

to lessen competition substantially through 

coordinated interaction if it creates a likelihood 

that, after the merger, competitors would 

coordinate their pricing or other competitive 

actions, or would coordinate them more 

completely or successfully than before the merger. 

A merger is likely to lessen competition 

substantially through unilateral effects if it creates 

a likelihood that the merged firm, without any 

coordination with non-merging rivals, would raise 

its price or otherwise exercise market power to a 

greater degree than before the merger. 

Normally, the likely effects of a merger within 

a particular market are best characterized as either 

coordinated or unilateral, but it is possible to have 

both sorts of competitive effects within a single 

relevant market. This possibility may be most 

likely if the coordinated and unilateral effects 

relate to different dimensions of competition or 

would manifest themselves at different times. 

Although these two broad analytical 

frameworks provide guidance on how the 

Agencies analyze competitive effects, the 

particular labels are not the focus. What matters 

is not the label applied to a competitive effects 

analysis, but rather whether the analysis is clearly 

articulated and grounded in both sound 

economics and the facts of the particular case. 

These frameworks embrace every competitive 

effect of any form of horizontal merger. The 

Agencies do not recognize or apply narrow 

readings of the Guidelines that could cause 

anticompetitive transactions to fall outside of, or 

fall within a perceived gap between, the 

coordinated and unilateral effects frameworks. 

In evaluating the likely competitive effects of a 

proposed merger, the Agencies assess the full 

range of qualitative and quantitative evidence 

obtained from the merging parties, their 

competitors, their customers, and a variety of 

other sources. By carefully evaluating this 

evidence, the Agencies gain an understanding of 

the setting in which the proposed merger would 

occur and how best to analyze competition. This 

understanding draws heavily on the qualitative 

evidence from documents and first-hand 

observations of the industry by customers and 

other market participants. In some cases, this 

understanding is enhanced significantly by 

quantitative analyses of various sorts. One type of 

quantitative analysis is, as explained in Chapter 1, 

the “natural experiment” in which variation in 

market structure (e.g., from past mergers) can be 

empirically related to changes in market 

performance. 

The Agencies examine whatever evidence is 

available and apply whatever tools of economics 

would be productive in an effort to arrive at the 

most reliable assessment of the likely effects of 

proposed mergers. Because the facts of merger 

investigations commonly are complex, some bits 

of evidence may appear inconsistent with the 

Agencies’ ultimate assessments. The Agencies 

challenge a merger if the weight of the evidence 

establishes a likelihood that the merger would be 

anticompetitive. The type of evidence that is most 

telling varies from one merger to the next, as do 

the most productive tools of economics. 

In assessing a merger between rival sellers, the 

Agencies consider whether buyers are likely able 

to defeat any attempts by sellers after the merger 

to exercise market power. Large buyers rarely can 

negate the likelihood that an otherwise 

17
anticompetitive merger between sellers would 

harm at least some buyers. Most markets with 

large buyers also have other buyers against which 

market power can be exercised even if some large 

buyers could protect themselves. Moreover, even 

very large buyers may be unable to thwart the 

exercise of market power. 

Although they generally focus on the likely 

effects of proposed mergers on prices paid by 

consumers, the Agencies also evaluate the effects 

of mergers in other dimensions of competition. 

The Agencies may find that a proposed merger 

would be likely to cause significant 

anticompetitive effects with respect to innovation 

or some other form of non-price rivalry. Such 

effects may occur in addition to, or instead of, 

price effects. 

The sections that follow address in greater 

detail the Agencies’ application of the Guidelines’ 

coordinated interaction and unilateral effects 

frameworks. 

Coordinated Interaction 

A horizontal merger changes an industry’s 

structure by removing a competitor and 

combining its assets with those of the acquiring 

firm. Such a merger may change the competitive 

environment in such a way that the remaining 

firms—both the newly merged entity and its 

competitors—would engage in some form of 

coordination on price, output, capacity, or other 

dimensions of competition. The coordinated 

effects section of the Guidelines addresses this 

potential competitive concern. In particular, the 

Agencies seek to identify those mergers that are 

likely either to increase the likelihood of 

coordination among firms in the relevant market 

when no coordination existed prior to the merger, 

or to increase the likelihood that any existing 

coordinated interaction among the remaining 

firms in the relevant market would be more 

successful, complete, or sustainable. 

A merger could reduce competition 

substantially through coordinated interaction and 

run afoul of section 7 of the Clayton Act without 

an agreement or conspiracy within the meaning of 

the Sherman Act. Even if a merger is likely to 

result in coordinated interaction, or more 

successful coordinated interaction, and violates 

section 7 of the Clayton Act, that coordination, 

depending on the circumstances, may not 

constitute a violation of the Sherman Act. As 

section 2.1 of the Guidelines states, coordinated 

interaction “includes tacit or express collusion, 

and may or may not be lawful in and of itself.” 

Most mergers have no material effect on the 

potential for coordination. Some may even lessen 

the likelihood of coordination. To identify those 

mergers that enhance the likelihood or 

effectiveness of coordination, the Agencies 

typically evaluate whether the industry in which 

the merger would occur is one that is conducive to 

coordinated behavior by the market participants. 

The Agencies also evaluate how the merger 

changes the environment to determine whether 

the merger would make it more likely that firms 

successfully coordinate. 

In conducting this analysis, the Agencies 

attempt to identify the factors that constrain rivals’ 

ability to coordinate their actions before the 

merger. The Agencies also consider whether the 

merger would sufficiently alter competitive 

conditions such that the remaining rivals after the 

merger would be significantly more likely to 

overcome any pre-existing obstacles to 

coordination. Thus, the Agencies not only assess 

whether the market conditions for viable 

coordination are present, but also ascertain 

specifically whether and how the merger would 

affect market conditions to make successful 

coordination after the merger significantly more 

likely. This analysis includes an assessment of 

whether a merger is likely to foster a set of 

common incentives among remaining rivals, as 

well as to foster their ability to coordinate 

successfully on price, output, or other dimensions 

of competition. 

Successful coordination typically requires 

rivals (1) to reach terms of coordination that are 

profitable to each of the participants in the 

coordinating group, (2) to have a means to detect 

deviations that would undermine the coordinated 

interaction, and (3) to have the ability to punish 

deviating firms, so as to restore the coordinated 

status quo and diminish the risk of deviations. 

Guidelines § 2.1. Punishment may be possible, for 

example, through strategic price-cutting to the 

deviating rival’s customers, so as effectively to 

erase the rival’s profits from its deviation and 

make the rival less likely to “cheat” again. 

Coordination on prices tends to be easier the more 

transparent are rivals’ prices, and coordination 

through allocation of customers tends to be easier 

18
the more transparent are the identities of 

particular customers’ suppliers. It may be 

relatively more difficult for firms to coordinate on 

multiple dimensions of competition in markets 

with complex product characteristics or terms of 

trade. Such complexity, however, may not affect 

the ability to coordinate in particular ways, such 

as through customer allocation. Under Guidelines 

analysis, likely coordination need not be perfect. 

To the contrary, the Agencies assess whether, for 

example, it is likely that coordinated interaction 

will be sufficiently successful following the merger 

to result in anticompetitive effects. 

LaFarge–Blue Circle (FTC 2001) A merger of 

LaFarge S.A. and Blue Circle Industries PLC 

raised coordinated interaction concerns in 

several relevant markets, including that for 

cement in the Great Lakes region. In that 

market, the merger would have created a firm 

with a combined market share exceeding 40% 

and a market in which the top four firms 

would control approximately 90% of the 

supply. The post-merger HHI would have 

been greater than 3,000, with a change in the 

HHI of over 1,000. Cement is widely viewed 

as a homogeneous, highly standardized 

commodity product over which producers 

compete principally on price. Industry 

practice was that suppliers informed customers 

of price increases months before they were to 

take effect, making prices across rival suppliers 

relatively transparent. 

Sales transactions tended to be frequent, 

regular, and relatively small. These factors 

heightened concern that, after the merger, 

incumbents were not only likely to coordinate 

profitably on price terms, but also that the 

firms would have little incentive to deviate 

from the consensus price. That possibility 

existed because the profit to be gained from 

deviation would be less than the potential 

losses that would result if rivals retaliated. The 

Commission challenged the merger, resolving 

it by a consent order that required, among 

other things, divestiture of cement-related 

assets in the Great Lakes region. 

R.J. Reynolds–British American (FTC 2004) In 

a merger of the second- and third-largest 

marketers of cigarettes, R.J. Reynolds Tobacco 

Holdings, Inc. proposed to acquire Brown & 

Williamson Tobacco Corporation from British 

American Tobacco plc. Within the market for 

all cigarettes, the merger would have increased 

the HHI from 2,735 to 3,113. The Commission 

assessed whether the cigarette market was 

susceptible to coordinated interaction. 

Concluding that “the market for cigarettes is 

subject to many complexities, continual 

changes, and uncertainties that would severely 

complicate the tasks of reaching and 

monitoring a consensus,” the Commission 

closed the investigation without challenging 

the merger. The Commission’s closing 

statement points to the high degree of 

differentiation among cigarette brands, as well 

as sizable variation in firm sizes, product 

portfolios, and market positions among the 

manufacturers as factors that created different 

incentives for the different manufacturers to 

participate in future coordination. These 

factors made future coordination more difficult 

to manage and therefore unlikely. 

Both RJR and Brown & Williamson had 

portfolios of cigarette brands that included a 

smaller proportion of strong premium brands 

and a larger proportion of vulnerable and 

declining discount brands than the other major 

cigarette competitors. At the time of the 

merger, both companies were investing in 

growing a smaller number of premium equity 

brands to maintain sales and market share. 

There was uncertainty about the results of 

these strategic changes. The Commission 

concluded that uncertainties of these types 

greatly increased the difficulty of engaging in 

coordinated behavior. The Commission also 

noted that competition in the market was 

driven by discount brands and by equity 

investment in select premium brands among 

the four leading rivals, and there was little 

evidence that Brown & Williamson’s continued 

autonomy was critical to the preservation of 

either form of competition. Brown & 

Williamson had been reducing, not increasing, 

its commitment in the discount segment, and 

was a very small factor in equity brands. 

The Commission also described variations 

in the marketing environment for cigarettes 

from state to state and between rural and 

urban areas. These variations made it more 

difficult and costly for firms to monitor their 

rival’s activities and added to the complexity 

of coordination. 

19
Coordination that reduces competition and 

consumer welfare could be accomplished using 

many alternative mechanisms. Coordinated 

interaction can occur on one or more competitive 

dimensions, such as price, output, capacity, 

customers served, territories served, and new 

product introduction. Coordination on price and 

coordination on output are essentially equivalent 

in their effects. When rivals successfully 

coordinate to restrict output, price rises. Similarly, 

when rivals successfully coordinate on price—that 

is, they maintain price above the level it would be 

absent the coordination—the rate of output 

declines because consumers buy fewer units. 

Coordination on either price or output may 

pose difficulties that can be avoided by 

coordinating on customers or territories served. 

Rivals may coordinate on the specific customers 

with which each does business, or on the general 

types of customers with which they seek to do 

business. They also may coordinate on the 

particular geographic areas in which they operate 

or concentrate their efforts. Coordination also can 

occur with respect to aspects of rivalry, such as 

new product introduction. Rivals are likely to 

adopt the form of coordination for which it is 

easiest to spot deviations from the agreed terms of 

coordination and easiest to punish firms that 

deviate from those terms. Industry-specific factors 

thus are likely to influence firms’ choices on how 

to coordinate their activities. 

Concentration 

The number of rival firms remaining after a 

merger, their market shares, and market 

concentration are relevant factors in determining 

the effect of a merger on the likelihood of 

coordinated interaction. The presence of many 

competitors tends to make it more difficult to 

achieve and sustain coordination on competitive 

terms and also reduces the incentive to participate 

in coordination. Guidelines § 2.0. The Guidelines’ 

market share and concentration thresholds reflect 

this reality. 

The Agencies do not automatically conclude 

that a merger is likely to lead to coordination 

simply because the merger increases concentration 

above a certain level or reduces the number of 

remaining firms below a certain level. Although 

the Agencies recently have challenged mergers 

when four or more competitors would have 

remained in the market, see, e.g., LaFarge–Blue 

Circle, described above, when the evidence does 

not show that the merger will change the 

likelihood of coordination among the market 

participants or of other anticompetitive effects, the 

Agencies regularly close merger investigations, 

including those involving markets that would 

have fewer than four firms. 

As discussed in Chapter 1, enforcement data 

released by the Agencies show that market shares 

and concentration alone are not goodpredictors of 

enforcement challenges, except at high levels. 

Market shares and concentration nevertheless are 

important in the Agencies’ evaluation of the likely 

competitive effects of a merger. Investigations are 

almost always closed when concentration levels 

are below the thresholds set forth in section 1.51 of 

the Guidelines. In addition, the larger the market 

shares of the merging firms, and the higher the 

market concentration after the merger, the more 

disposed are the Agencies to concluding that 

significant anticompetitive effects are likely. 

Additional Market Characteristics 

Relevant to Competitive Analysis 

Section 2.1 of the Guidelines sets forth several 

general market characteristics that may be 

relevant to the analysis of the likelihood of 

coordinated interaction following a merger: “the 

availability of key information concerning market 

conditions, transactions and individual 

competitors; the extent of firm and product 

heterogeneity; pricing or market practices 

typically employed by firms in the market; the 

characteristics of buyers and sellers; and the 

characteristics of typical transactions.” Section 

2.11 of the Guidelines states that the ability of 

firms to reach terms of coordination “may be 

facilitated by product or firm homogeneity and by 

existing practices among firms, practices not 

necessarily themselves antitrust violations, such as 

standardization of pricing or product variables on 

which firms could compete.” Further, “[k]ey 

information about rival firms and the market may 

also facilitate reaching terms of coordination.” Id. 

These market characteristics may illuminate 

the degree of transparency and complexity in the 

competitive environment. The existence or 

absence of any particular characteristic (e.g., 

product homogeneity or transparency in prices) in 

a relevant market, however, is neither a necessary 

20
nor a sufficient basis for the Agencies to determine 

whether successful coordination is likely following 

a merger. In other words, these factors are not 

simply put on the left or right side of a ledger and 

balanced against one another. Rather, the 

Agencies identify the specific factors relevant to 

the particular mechanism for coordination being 

assessed and focus on how those factors affect 

whether the merger would alter the likelihood of 

successful coordination. 

Formica–International Paper (DOJ 1999) 

Formica Corp. and International Paper Co. 

were two producers of high-pressure laminates 

used to make durable surfaces such as 

countertops, work surfaces, doors, and other 

interior building products. Formica sought to 

acquire the high-pressure laminates business of 

International Paper Co. There were just four 

competitors in the United States, and the 

acquisition of International Paper Co.’s 

business would have given Formica and its 

largest remaining competitor almost 90% of 

total sales between them. The market 

appeared to have been performing reasonably 

competitively, but the Department was 

concerned that two dominant competitors 

would coordinate pricing and output after the 

acquisition. 

One reason for this concern was that the 

small competitors remaining after the merger 

had relatively high costs and were unable to 

expand output significantly, so they would not 

have been able to undermine that coordination. 

In addition, the Department concluded that 

International Paper, with significant excess 

capacity, had the ability to undermine 

coordination and had done so. The 

Department also found that major competitors 

had very good information on each others’ 

pricing and would be able to detect deviations 

from coordinated price levels. After the 

Department announced its intention to 

challenge the merger, the parties abandoned 

the deal. 

Although coordination may be less likely the 

greater the extent of product heterogeneity, 

mergers in markets with differentiated products 

nonetheless can facilitate coordination. Although 

a merger resulting in closer portfolio conformity 

may prompt more intense, head-to-head 

competition among rivals that benefits consumers, 

an enhanced mutual understanding of the 

production and marketing variables that each rival 

faces also may result. Better mutual 

understanding can increase the ability to 

coordinate successfully, thus diminishing the 

benefits to consumers that the more intense 

competition otherwise would have provided. 

Sellers of differentiated products also may 

coordinate in non-price dimensions of competition 

by limiting their product portfolios, thereby 

limiting the extent of competition between the 

products of rival sellers. They also may 

coordinate on customers or territories rather than 

on prices. 

Diageo–Vivendi (FTC 2001) The Commission 

challenged a merger between Diageo plc and 

Vivendi Universal S.A., competitors in the 

manufacture and sale of premium rum—a 

product that is heterogeneous as to brand 

name and the type of rum, e.g., light or gold, 

flavored or unflavored—on the grounds, 

among others, that the transaction was likely to 

lead to coordinated interaction among 

premium rum rivals. Diageo, which owned 

the Malibu Rum brand with about an 8% share, 

was seeking to acquire Seagram’s, which 

marketed Captain Morgan Original Spiced 

Rum and Captain Morgan Parrot Bay Rum 

brands and had about a 33% share. Bacardi 

USA, with its Bacardi Light and Bacardi Limon 

brands, was the largest competitor with about 

a 54% share. Thus, after the acquisition, 

Diageo and Bacardi USA would have had a 

combined share of about 95% in the U.S. 

premium rum market. 

Significant differentiation among major 

brands of rum reduces the closeness of 

substitution among them. Nonetheless, the 

Commission had reason to believe that the 

acquisition would increase the likelihood and 

extent of coordinated interaction to raise 

prices. Having a single owner of both the 

Seagram’s rum products and the Malibu brand 

created the substantial concern that coordination that was not profitable for Bacardi and 

Seagram’s before the merger likely would have 

become profitable after the merger. Although 

a smaller rival before the merger, Diageo’s 

Malibu imposed a significant competitive 

constraint on Seagram’s and Bacardi. The 

Commission challenged the merger and agreed 

21
to a settlement with the parties that required 

Diageo to divest its worldwide Malibu rum 

business to a third party. 

Role of Evidence of Past Coordination 

Facts showing that rivals in the relevant market 

have coordinated in the past are probative of 

whether a market is conducive to coordination. 

Guidelines § 2.1. Such facts are probative because 

they demonstrate the feasibility of coordination 

under past market conditions. Other things being 

equal, the removal of a firm via merger, in a 

market in which incumbents already have 

engaged in coordinated behavior, generally raises 

the risk that future coordination would be more 

successful, durable, or complete. Accordingly, the 

Agencies investigate whether the relevant market 

at issue has experienced such behavior and, if so, 

whether market conditions that existed when the 

coordination took place—and thus were 

conducive to coordination—are still in place. A 

past history of coordination found unlawful can 

provide strong evidence of the potential for 

coordination after a merger. 

Air Products–L’Air Liquide (FTC 2000) Two of 

the four largest industrial gas suppliers, Air 

Products and Chemicals, Inc. and L’Air 

Liquide S.A., proposed acquisitions that would 

result in splitting between them the assets of a 

third large rival, The BOC Group plc. The 

proposed asset split would have resulted in 

three remaining industrial gas suppliers that 

were nearly the same in size, cost structure, 

and geographic service areas. Products 

involved in the asset split included bulk liquid 

oxygen, bulk liquid nitrogen, and bulk liquid 

argon (together referred to as atmospheric 

gases), various electronic specialty gases, and 

helium—each of which is a homogeneous 

product. Bulk liquid oxygen and nitrogen 

trade in regional markets, and the transactions 

would have affected multiple regional areas. 

In these areas, the four largest producers 

accounted for between 70% and 100% of the 

markets. The four suppliers also accounted for 

about 90% of the national market for bulk 

liquid argon. 

The staff found evidence of past 

coordination. In 1991, the four major industrial 

air gas suppliers pled guilty in Canada to a 

charge of conspiring to eliminate competition 

for a wide range of industrial gases, including 

bulk liquid oxygen, nitrogen, and argon. 

Industrial gas technology is well-established, 

market institutions in the U.S. were similar to 

those in Canada, and nothing had changed 

significantly during the intervening period to 

suggest that coordination had become more 

difficult or less likely. 

Other evidence also indicated that the 

markets were susceptible to coordinated 

behavior: firms announced price changes 

publicly, and industry-wide price increases 

tended to follow such announcements; a 

number of joint ventures, swap agreements, 

and other relationships among the suppliers 

provided opportunities for information 

sharing; and incumbents tended not to bid 

aggressively for rivals’ current customers. 

Neither fringe expansion nor new entry was 

likely to defeat future coordination. Staff 

concluded that the proposed asset split would 

likely enable the remaining firms to engage in 

coordination more effectively. The parties 

abandoned the proposed transactions. 

Suiza–Broughton (DOJ 1999) Suiza Foods 

Corp. and Broughton Foods Co. proposed to 

merge. Broughton owned the Southern Belle 

dairy in Somerset, Kentucky, and Suiza 

operated several dairies in Kentucky, including 

the Flav-O-Rich dairy in London, Kentucky. 

Six years earlier, when Flav-O-Rich and 

Southern Belle were independently owned, 

both pleaded guilty to criminal charges of 

rigging bids in the sale of milk to schools. The 

Department found that the proposed merger 

would have reduced from three to two the 

number of dairies competing to supply milk to 

thirty-two school districts in South Central 

Kentucky, including many that had been 

victimized by the prior bid rigging. The 

Department challenged the merger on the 

basis that it likely would lead to coordinated 

anticompetitive effects, and the demonstrated 

ability of these particular dairies to coordinate 

was a significant factor in the Department’s 

decision. The Department’s complaint was 

resolved by a consent decree requiring 

divestiture of the Southern Belle Dairy. 

Degussa–DuPont (FTC 1998) Degussa 

Aktiengesellschaft, a producer of hydrogen 

peroxide, proposed to acquire rival E.I. du 

22
Pont de Nemours & Co.’s hydrogen peroxide 

manufacturing assets. The Commission found 

that the relevant U.S. market was conducive to 

coordinated interaction based on evidence that 

showed, among other things, high 

concentration levels, product homogeneity, 

and the ready availability of reliable 

competitive information. Moreover, the same 

firms that would have been the leading U.S. 

producers after the merger had recently been 

found to have engaged in market division in 

Europe for several years. The Commission 

identified this history of collusion as a factor 

supporting its conclusion that the proposed 

transaction likely would result in 

anticompetitive effects from coordinated 

interaction. Under the terms of a consent 

agreement to resolve these competitive 

concerns, the acquirer was permitted to 

purchase one plant but not the entirety of the 

seller’s hydrogen peroxide manufacturing 

assets. 

Even when firms have no prior record of 

antitrust violations, evidence that firms have 

coordinated at least partially on competitive terms 

suggests that market characteristics are conducive 

to coordination. 

Rhodia–Albright & Wilson (FTC 2000) Rhodia 

entered into an agreement to acquire Albright 

& Wilson PLC, a wholly owned subsidiary of 

Donau Chemie AG. The merging firms were 

industrial phosphoric acid producers. The 

Commission developed evidence that the 

market was highly concentrated, that the 

relevant product was homogenous, and that 

timely competitive intelligence was readily 

available—all conditions that are generally 

conducive to coordination. Incumbent 

marketing strategies suggested a tendency to 

curb aggressive price competition and 

suggested a lack of competition. 

The Commission found that industrial 

phosphoric acid pricing, unlike the pricing of 

other similar chemical products, had not 

historically responded significantly to changes 

in the rate of capacity utilization among 

producers. In most chemical product markets, 

when capacity utilization declines, prices often 

decline as well. In this market, however, 

during periods of decline in capacity 

utilization among industrial phosphoric acid 

producers, prices often remained relatively 

stable. All of these factors established that the 

relevant market—even before the proposed 

merger—was performing in a manner 

consistent with coordination. The Commission 

entered into a consent order requiring, among 

other things, divestiture of phosphoric acid 

assets. 

When investigating mergers in industries 

characterized by collusive behavior or previous 

coordinated interaction, the Agencies focus on 

how the mergers affect the likelihood of successful 

coordination in the future. In some instances, a 

simple reduction in the number of firms may 

increase the likelihood of effective coordinated 

interaction. Evidence of past coordination is less 

probative if the conduct preceded significant 

changes in the competitive environment that made 

coordination more difficult or otherwise less 

likely. Such changes might include, for example, 

entry, changes in the manufacturing processes of 

some competitors, or changes in the characteristics 

in the relevant product itself. Events such as these 

may have altered the incumbents’ incentives or 

ability to coordinate successfully. 

Although a history of past collusion may be 

probative as to whether the market currently is 

conducive to coordination, the converse is not 

necessarily true, i.e., a lack of evidence of past 

coordination does not imply that future 

coordination is unlikely. When the Agencies 

conclude that previous episodes of coordinated 

interaction are not probative in the context of 

current market conditions—or when they find no 

evidence that rivals coordinated in the past—an 

important focus of the investigation becomes 

whether the merger is likely to cause the relevant 

market to change from one in which coordination 

did not occur to one in which such coordination is 

likely. 

Premdor–Masonite (DOJ 2001) Premdor Inc. 

sought to acquire (from International Paper 

Co.) Masonite Corp., one of two large 

producers of “interior molded doorskins,” 

which form the front and back of “interior 

molded doors.” Interior molded doors provide 

much the same appearance as solid wood 

doors but at a much lower cost, and Premdor 

was the world’s largest producer. Premdor 

also held a substantial equity stake in a firm 

that supplied some of its doorskins. The vast 

23
majority of doorskins, however, were 

produced by Masonite and by a third party 

that was also Premdor’s only large rival in the 

sale of interior molded doors. The Department 

concluded that the upstream and downstream 

markets for interior molded doorskins and 

interior molded doors were highly 

concentrated and that the proposed acquisition 

would have removed significant impediments 

to coordination. 

The Department found that the most 

significant impediment to upstream 

coordination was Premdor’s ability, in the 

event of an upstream price increase, to expand 

production of doorskins, both for its own use 

and for sale to other door producers. The 

proposed acquisition, however, would have 

eliminated Premdor’s incentive to undermine 

upstream coordination. The Department also 

found that a significant impediment to 

downstream coordination was Masonite’s 

incentive and ability to support output 

increases by smaller downstream competitors. 

The proposed acquisition, however, would 

have eliminated Masonite’s incentive to do so. 

Finally, the Department found that the 

acquisition would have facilitated coordination 

by bringing the cost structures of the principal 

competitors into alignment, both upstream and 

downstream, and by making it easier to 

monitor departures from any coordination. 

The Department’s challenge of the acquisition 

was resolved by a consent decree requiring, 

among other things, divestiture of a Masonite 

manufacturing facility. 

Maverick and Capacity Factors in 

Coordination 

A merger may make coordination more likely 

or more effective when it involves the acquisition 

of a firm or asset that is competitively unique. In 

this regard, section 2.12 of the Guidelines 

addresses the acquisition of “maverick” firms, i.e., 

“firms that have a greater economic incentive to 

deviate from the terms of coordination than do 

most of their rivals (e.g., firms that are unusually 

disruptive and competitive influences in the 

market).” If the acquired firm is a maverick, its 

acquisition may make coordination more likely 

because the nature and intensity of competition 

may change significantly as a result of the merger. 

In such a case, the Agency’s investigation 

examines whether the acquired firm has behaved 

as a maverick and whether the incentives that are 

expected to guide the merged firm’s behavior 

likely would be different. 

Similarly, a merger might lead to 

anticompetitive coordination if assets that might 

constrain coordination are acquired by one of a 

limited number of larger incumbents. For 

example, coordination could result if, prior to the 

acquisition, the capacity of fringe firms to expand 

output was sufficient to defeat the larger firms’ 

attempts to coordinate price, but the acquisition 

would shift enough of the fringe capacity to a 

major firm (or otherwise eliminate it as a 

competitive threat) so that insufficient fringe 

capacity would remain to undermine a 

coordinated price increase. 

Arch Coal–Triton (FTC 2004) The Commission 

challenged Arch Coal, Inc.’s acquisition of 

Triton Coal Co., LLC’s North Rochelle mine in 

the Southern Powder River Basin of Wyoming 

(“SPRB”). Prior to the acquisition, three large 

companies—Arch, Kennecott, and Peabody 

(the “Big Three”)—owned a large majority of 

SPRB mining capacity. The remaining 

capacity, including the North Rochelle mine, 

was owned by fringe companies with smaller 

market shares. The Commission’s competitive 

concern was that, by transferring ownership of 

the North Rochelle mine from the fringe to a 

member of the Big Three, the acquisition 

would significantly reduce the supply elasticity 

of the fringe and increase the likelihood of 

coordination to reduce Big Three output. As a 

result of the reduction in fringe supply 

elasticity, a given reduction in output by the 

Big Three would be more profitable to each 

member of that group after the acquisition than 

would have been the case before the 

acquisition. Mine operators had, in the past, 

announced their future intentions with regard 

to production and had publicly encouraged 

“production discipline.” The court denied the 

Commission’s preliminary injunction request 

and, after further investigation, the 

Commission decided not to pursue further 

administrative litigation. 

UPM–MACtac (DOJ 2003) UPM-Kymmene 

Oyj sought to acquire (from Bemis Co.) 

Morgan Adhesives Co. (“MACtac”). Three 

24
firms—MACtac, UPM’s Raflatac, Inc. 

subsidiary, and Avery Dennison Corp.—were 

the only large producers of paper pressuresensitive labelstock, which is used by 

“converters” to make paper self-adhesive 

labels for a range of consumer and commercial 

applications. The Department found that the 

proposed acquisition would result in UPM and 

Avery controlling over 70% of sales in the 

relevant market, and in smaller rivals having 

insufficient capacity to undermine a price 

increase by UPM and Avery. Prior to the 

announcement of its proposed acquisition of 

MACtac, UPM and Avery had exchanged 

communications about their mutual concerns 

regarding intense price competition, and there 

was evidence that they had reached an 

understanding to hold the line on further price 

cuts. MACtac, however, was not a party to this 

understanding, and it had both substantial 

excess capacity and the incentive to expand 

sales by cutting price. 

The Department concluded that the 

proposed acquisition would eliminate the 

threat to coordination from MACtac and that 

no other competitor posed such a threat. Also 

significant was the fact that UPM was a major 

input supplier for Avery both because this 

relationship created opportunities for 

communication between the two and because 

it made possible mutual threats that could be 

used to induce or enforce coordination. The 

Department, therefore, concluded that Avery 

and UPM would be likely to coordinate after 

the acquisition and challenged the transaction 

on that basis. After trial, the district court 

enjoined the consummation of the acquisition. 

Unilateral Effects 

Section 2.2 of the Guidelines states that 

“merging firms may find it profitable to alter their 

behavior unilaterally following the acquisition by 

elevating price and suppressing output.” The 

manner in which a horizontal merger may 

generate unilateral competitive effects is 

straightforward: By eliminating competition 

between the merging firms, a merger gives the 

merged firm incentives different from those of the 

merging firms. The simplest unilateral effect 

arises from merger to monopoly, which eliminates 

all competition in the relevant market. Since the 

issuance of the Guidelines in 1992, a substantial 

proportion of the Agencies’ merger challenges 

have been predicated at least in part on a 

conclusion that the proposed mergers were likely 

to generate anticompetitive unilateral effects. 

Section 2.2 of the Guidelines explains: 

“Unilateral competitive effects can arise in a 

variety of different settings. In each setting, 

particular other factors describing the relevant 

market affect the likelihood of unilateral 

competitive effects. The settings differ by the 

primary characteristics that distinguish firms and 

shape the nature of their competition.” Section 2.2 

does not articulate, much less detail, every 

particular unilateral effects analysis the Agencies 

may apply. 

The Agencies’ analysis of unilateral 

competitive effects draws on many models 

developed by economists. The simplest is the 

model of monopoly, which applies to a merger 

involving the only two competitors in the relevant 

market. One step removed from monopoly is the 

dominant firm model. That model posits that all 

competitors but one in an industry act as a 

“competitive fringe,” which can economically 

satisfy only part of total market demand. The 

remaining competitor acts as a monopolist with 

respect to the portion of total industry demand 

that the competitive fringe does not elect to 

supply. This model might apply, for example, in 

a homogeneous product industry in which the 

fringe competitors are unable to expand output 

significantly. 

In other models, two or more competitors 

interact strategically. These models differ with 

respect to how competitors interact. In the 

Bertrand model, for example, competitors interact 

in the choice of the prices they charge. Similar to 

the Bertrand model are auction models, in which 

firms interact by bidding. There are many auction 

models with many different bidding procedures. 

In the Cournot model, competitors interact in the 

choice of the quantities they sell. And in 

bargaining models, competitors interact through 

their choices of terms on which they will deal with 

their customers. 

Formal economic modeling can be useful in 

interpreting the available data (even with natural 

experiments). One type of modeling the Agencies 

use is “merger simulation,” which “calibrates” a 

model to match quantitative aspects (e.g., demand 

25
elasticities) of the industry in which the merger 

occurs and uses the calibrated model to predict the 

outcome of the competitive process after the 

merger. Merger simulation can be a useful tool in 

determining whether unilateral effects are likely to 

constitute a substantial lessening of competition 

when a particular model mentioned above fits the 

facts of the industry under review and suitable 

data can be found to calibrate the model. The fit 

of a model is evaluated on the basis of the totality 

of the evidence. 

Section 2.2 of the Guidelines does not establish 

a special safe harbor applicable to the Agencies’ 

consideration of possible unilateral effects. 

Section 2.2.1 provides that significant unilateral 

effects are likely with differentiated products 

when the combined market share of the merging 

firms exceeds 35% and other market 

characteristics indicate that market share is a 

reasonable proxy for the relative appeal of the 

merging products as second choices as well as first 

choices. Section 2.2.2 provides that significant 

unilateral effects are likely with undifferentiated 

products when the combined market share of the 

merging firms exceeds 35% and other market 

characteristics indicate that non-merging firms 

would not expand output sufficiently to frustrate 

an effort to reduce total market output. 

As an empirical matter, the unilateral effects 

challenges made by the Agencies nearly always 

have involved combined shares greater than 35%. 

Nevertheless, the Agencies may challenge mergers 

when the combined share falls below 35% if the 

analysis of the mergers’ particular unilateral 

competitive effects indicates that they would be 

likely substantially to lessen competition. 

Combined shares less than 35% may be 

sufficiently high to produce a substantial 

unilateral anticompetitive effect if the products are 

differentiated and the merging products are 

especially close substitutes or if the product is 

undifferentiated and the non-merging firms are 

capacity constrained. 

Unilateral Effects from 

Merger to Monopoly 

The Agencies are likely to challenge a 

proposed merger of the only two firms in a 

relevant market. The case against such a merger 

would rest upon the simplest of all unilateral 

effects models. Relatively few mergers to 

monopoly are proposed. Some proposed mergers 

affecting many markets would have resulted in 

monopolies in one or more of these markets. 

Franklin Electric–United Dominion (DOJ 

2000) Subsidiaries of Franklin Electric Co. and 

United Dominion Industries were the only two 

domestic producers of submersible turbine 

pumps used for pumping gasoline from 

underground storage tanks at retail stations. 

The parent companies entered into a joint 

venture agreement that would have combined 

those subsidiaries. The Department found that 

entry was difficult and that other pumps, 

including foreign-produced pumps, were not 

good substitutes. Hence, the Department 

concluded that the formation of the joint 

venture likely would create a monopoly and 

thus give rise to a significant unilateral 

anticompetitive effect. After trial, the district 

court granted the Department’s motion for a 

permanent injunction. 

Glaxo Wellcome–SmithKline Beecham (FTC 

2000) When Glaxo Wellcome plc and 

SmithKline Beecham plc proposed to merge, 

each manufactured and marketed numerous 

pharmaceutical products. For most products, 

the transaction raised no significant 

competition issues, but it did raise concerns in 

several product lines. Among them was the 

market for research, development, 

manufacture, and sale of second generation 

oral and intravenous antiviral drugs used in 

the treatment of herpes. Glaxo Wellcome’s 

Valtrex and SmithKline Beecham’s Famvir 

were the only such drugs sold in the United 

States. Having concern both for the market for 

currently approved drugs and the market for 

new competing drugs, the Commission alleged 

that the merger would have prompted a 

unilateral increase in prices and reduction in 

innovation in this monopolized market. The 

matter was resolved by a consent order, 

pursuant to which the merged firm was 

required, among other things, to divest 

SmithKline’s Famvir-related assets. 

Suiza–Broughton (DOJ 1999) Suiza Foods 

Corp. and Broughton Foods Co. competed in 

the sale of milk to school districts, which 

procured the milk through annual contracts 

entered into after taking bids. The Department 

found that competition for each of the school 

26
districts was entirely separate from the others, 

so each constituted a separate geographic 

market. The Department sought to enjoin the 

proposed merger of the two companies after 

finding that it threatened competition in 55 

school districts in south central Kentucky and 

would have created a monopoly in 23 of those 

districts. The matter was resolved by a consent 

order, pursuant to which the merged firm was 

required to divest the dairy in Kentucky 

owned by Broughton. 

Unilateral Effects Relating to 

Capacity and Output for 

Homogeneous Products 

In markets for homogeneous products, the 

Agencies consider whether proposed mergers 

would, once consummated, likely provide the 

incentive to restrict capacity or output 

significantly and thereby drive up prices. 

Georgia-Pacific–Fort James (DOJ 2000) 

Georgia-Pacific Corp. and Fort James Corp. 

were the two largest producers in the United 

States of “away-from-home” tissue products 

(i.e., paper napkins, towels, and toilet tissue 

used in commercial establishments). These 

products are produced in a two-stage process, 

the first stage of which is the production of 

massive parent rolls, which also are used to 

make at-home tissue products. GeorgiaPacific’s proposed acquisition of Fort James 

would have increased Georgia-Pacific’s share 

of North American parent roll capacity to 36%. 

Investigation revealed that the industry was 

operating at nearly full capacity, that capacity 

could not be quickly expanded, and that 

demand was relatively inelastic. These factors 

combined to create a danger that, after the 

merger, Georgia-Pacific would act as a 

dominant firm by restricting production of 

parent rolls and thereby forcing up prices for 

away-from-home tissue products. Merger 

simulation indicated that the acquisition would 

cause a significant price increase. The 

Department’s challenge to the acquisition was 

settled by a consent decree requiring the 

divestiture of Georgia-Pacific’s away-fromhome tissue business. 

Unilateral Effects Relating to the 

Pricing of Differentiated Products 

In analyzing a merger of two producers of 

differentiated consumer products, the Agencies 

examine whether the merger will alter the merged 

firm’s incentives in a way that leads to higher 

prices. The seller of a differentiated consumer 

product raises price above marginal cost to the 

point at which the profit gain from higher prices is 

balanced by the loss in sales. Merging two sellers 

of competing differentiated products may create 

an incentive for the merged firm to increase the 

price of either or both products because some of 

the sales lost as a result of the increase in the price 

of either of the two products would be 

“recaptured” by the other. 

As section 2.21 of the Guidelines explains, what 

matters in determining the unilateral effect of a 

differentiated products merger is whether “a 

significant share of sales in the market [is] 

accounted for by consumers who regard the 

products of the merging firms as their first and 

second choices.” Consumers typically differ 

widely with respect to both their most preferred 

products and their second choices. If a significant 

share of consumers view the products combined 

by the merger as their first and second choices, the 

merger may result in a significant unilateral effect. 

In all merger cases, the Agencies focus on the 

particular competitive relationship between the 

merging firms, and for mergers involving 

differentiated products, the “diversion ratios” 

between products combined by the merger are of 

particular importance. An increase in the price of 

a differentiated product causes a decrease in the 

quantity sold for that product and an increase in 

the quantities sold of products to which 

consumers switch. The diversion ratio from one 

product to another is the proportion of the 

decrease in the quantity of the first product 

purchased resulting from a small increase in its 

price that is accounted for by the increase in 

quantity purchased for the other product. In 

general, for any two products brought under 

common control by a transaction, the higher the 

diversion ratios, the more likely is significant harm 

to competition. 

A merger may produce significant unilateral 

effects even though a large majority of the 

substitution away from each merging product 

goes to non-merging products. The products of 

27
the merging firms need only be sufficiently close 

to each other (that is, have sufficiently high 

diversion ratios) that recapturing the portion of 

the lost sales indicated by the diversion ratios 

provides a significant incentive to raise prices. 

Significant unilateral effects are unlikely if the 

diversion ratios between pairs of products brought 

together by a merger are sufficiently low. 

A merger may produce significant unilateral 

effects even though a non-merging product is the 

“closest” substitute for every merging product in 

the sense that the largest diversion ratio for every 

product of the merged firm is to a non-merging 

firm’s product. The unilateral effects of a merger 

of differentiated consumer products are largely 

determined by the diversion ratios between pairs 

of products combined by the merger, and the 

diversion ratios between those products and the 

products of non-merging firms have at most a 

secondary effect. 

In ascertaining the competitive relationships in 

mergers involving differentiated products, the 

Agencies look to both qualitative and quantitative 

evidence bearing on the intensity or nature of 

competition. The Agencies make use of any 

available data that can shed light on diversion 

ratios, and when possible estimate them using 

statistical methods. Often, however, the available 

data are insufficient for reliable estimation of the 

diversion ratios. The absence of data suitable for 

such estimation does not preclude a challenge to 

a merger. The Agencies also rely on traditional 

sources of evidence, including documentary and 

testimonial evidence from market participants. 

Even when the Agencies estimate diversion ratios, 

documentary and testimonial evidence typically 

are used to corroborate the estimates. 

General Electric–Agfa NDT (FTC 2003) 

General Electric Co. proposed to acquire Agfa 

NDT Inc. from Agfa-Gevaert N.V. Through 

their subsidiaries, the firms were the two 

largest suppliers of ultrasonic non-destructive 

testing (“NDT”) equipment in the United 

States. NDT equipment is used to inspect the 

structure and tolerance of materials without 

damaging them or impairing their future 

usefulness. Manufacturers and end users in a 

variety of industries use ultrasonic NDT 

equipment for quality control and safety 

purposes. Unilateral concerns arose in three 

relevant product markets: portable flaw 

detectors, corrosion thickness gauges, and 

precision thickness gauges. In each of these 

markets, the merging parties were the two 

largest firms, and the combined firm would 

have had a market share of greater than 70% in 

each of the markets. Documents and 

testimonial evidence indicated that the rivalry 

between GE and Agfa was particularly close, 

and that, for a wide variety of industry 

participants, the products of the two firms 

were their first and second choices. The 

evidence also showed that the two firms 

frequently were head-to-head rivals and that 

this competition benefitted consumers through 

aggressive price competition and innovation. 

Evidence also suggested that the remaining 

fringe manufacturers would not be able to 

constrain a unilateral price increase by the 

merged firm. The Commission obtained a 

consent order requiring divestiture of GE’s 

NDT business. 

In many matters involving differentiated 

consumer products, the Agencies have analyzed 

price and quantity data generated at the point of 

sale, particularly by scanners at supermarket 

checkouts, to assess the likely effect of the merger 

on prices. 

Nestle–Dreyer’s (FTC 2003) Nestle Holdings, 

Inc., proposed to merge with Dreyer’s Grand 

Ice Cream, Inc. The firms were rivals in the 

sale of “superpremium ice cream.” Compared 

to premium and non-premium ice cream, 

superpremium ice cream contains more 

butterfat, less air, and more costly ingredients, 

and sells at a substantially higher price. Nestle 

sold the Haagen-Dazs brand in competition 

with the Dreyer’s Dreamery, Godiva, and 

Starbucks brands. Together Nestle and 

Dreyer’s accounted for about 55% of 

superpremium ice cream sales, and Unilever, 

through its Ben & Jerry’s brand, accounted for 

nearly all of the rest. Commission staff 

developed evidence showing that the merger 

was likely to result in unilateral 

anticompetitive effects, reflecting the close 

rivalry between the merging firms. Dreyer’s 

recently had expanded on a large scale into 

superpremium ice cream production and 

increased its share in this relatively mature 

market to above 20%. Analysis suggested that, 

by expanding, Dreyer’s induced increased 

28
competition from incumbent superpremium 

firms. Econometric analysis showed that the 

diversion ratios between the Nestle and 

Dreyer’s superpremium brands were sufficient 

to make a significant unilateral price increase 

by the merged firm likely. The diversion ratios 

with Unilever’s superpremium brands also 

were high. The analysis implied that the 

merged firm would be likely to raise its prices 

anticompetitively and that Unilever would also 

likely raise its Ben & Jerry’s prices in the postmerger environment. The Commission entered 

into a consent agreement with the merging 

firms requiring divestiture of two brands and 

key distribution assets. 

General Mills–Pillsbury (FTC 2001) General 

Mills, Inc.’s proposed purchase of The 

Pillsbury Co. from Diageo plc, involved the 

sale of some of the most widely recognized 

food products in the United States. Most of the 

products involved in the transaction did not 

raise antitrust concerns, but there were 

overlaps of potential concern in a handful of 

product lines, including flour. The Pillsbury 

and General Mills (Gold Medal) brands were 

the only two national flour brands, and after 

the merger General Mills would account for 

over half of total U.S. retail flour sales. Private 

label sales comprised less than 25% of sales 

nationwide, with the balance accounted for by 

numerous regional firms. Evidence tended to 

indicate that regional brands were not a 

significant constraint on General Mills and 

Pillsbury. The regional brands generally were 

highly differentiated, specialty brands and 

were not viewed as close substitutes for the 

more commodity-like General Mills and 

Pillsbury brands. The degree of constraint 

provided by private label brands was mixed, 

with some evidence suggesting that private 

label brands were a significant constraint but 

other evidence suggesting otherwise. 

Commission staff used scanner data to 

estimate demand elasticities. Because the 

strength of private label and regional flour 

brands varied across geographic regions, staff 

estimated elasticities for groups of markets 

defined according to the presence of regional 

brands. The cross-price elasticities between 

Gold Medal and Pillsbury brands and between 

these brands and private label and regional 

brands differed across regions. For example, 

the results suggested that Gold Medal and 

Pillsbury were the closest substitutes in some 

markets, while private label alternatives were 

an equally close substitute in other markets. 

Some regional brands also were found to be 

relatively close substitutes for Gold Medal and 

Pillsbury, while others were not. Commission 

staff used the estimated elasticities to simulate 

the expected price effect from the merger using 

the Bertrand model. The results suggested that 

the merging parties would raise their prices 

more than 10% even in markets where private 

label and regional brands were estimated to be 

equally close substitutes for Gold Medal and 

Pillsbury. 

Commission staff also examined whether 

pricing for flour varied across markets in 

relation to the amount of competition from 

private label or other brands. In particular, 

staff compared prices in geographic markets 

that were supplied predominantly by Gold 

Medal andprivate label, with prices in markets 

where Pillsbury or another brand was also 

strong. The results indicated that Pillsbury 

generally played an important role in 

constraining Gold Medal prices. These results 

were consistent with the elasticity results 

discussed above, and both suggested that the 

proposed merger would lead to price increases 

for flour. The parties resolved the competitive 

concerns in this market by selling Pillsbury’s 

product line. No Commission action was 

taken. 

Kimberly-Clark–Scott (DOJ 1995) KimberlyClark Corp. and Scott Paper Co. were two of 

the nation’s leading producers of consumer 

paper products when they announced their 

intention to merge. In facial tissue, KimberlyClark and Scott, together with Procter & 

Gamble, accounted for nearly 90% of all sales, 

and Kimberly-Clark’s Kleenex brand itself 

accounted for over half of sales. By estimating 

the relevant demand elasticities using scanner 

data, the Department determined that Scott’s 

facial tissue products, which were “value” 

products (sold at relatively low prices) and 

accounted for only 7% of sales, imposed a 

significant constraint on Kimberly-Clark’s 

prices. Likewise, in baby wipes, in which 

Kimberly-Clark and Scott’s brands together 

accounted for approximately 56% of sales, the 

Department’s analysis indicated that each was 

29
the other’s most significant competitive 

constraint. Hence, the Department concluded 

that acquiring Scott’s facial tissue and baby 

wipes businesses likely would give KimberlyClark an incentive to increase prices 

significantly for the merging brands. The 

Department’s challenge to the proposed 

merger was settled by a consent decree 

requiring the divestiture of assets relating to 

facial tissue and baby wipes. 

Interstate Bakeries–Continental (DOJ 1995) 

The Department undertook significant analysis 

of scanner data in evaluating Interstate 

Bakeries Corp.’s purchase of Continental 

Baking Co. from Ralston Purina Co. At the 

time, Continental, with its Wonder brand, was 

the largest baker of fresh bread in the United 

States, and Interstate was the third-largest. 

The Department’s investigation focused on 

white pan bread. White pan bread is the 

primary sandwich and toasting bread in the 

United States, and market participants viewed 

it as a highly differentiated product. Price 

differences were a clear indication of consumer 

preference for premium brands over 

supermarket private label brands; the price of 

the premium brands was at least twice the 

price of the private label products. 

Econometric evidence confirmed that there 

was only limited competitive interaction 

between premium and private label brands. 

Marketing, econometric, and other evidence 

also indicated that there were significant 

preferences among individual premium 

brands. The Department’s investigation 

focused on five metropolitan areas (Chicago, 

Milwaukee, Central Illinois, Los Angeles, and 

San Diego) in which Continental and Interstate 

had the two largest-selling premium brands, or 

two of the three largest-selling brands. 

Econometric analysis determined that there 

were substantial cross-elasticities of demand 

between the Continental and Interstate brands 

of white pan bread, consistent with a 

likelihood of significant unilateral 

anticompetitive effects following the merger. 

The Department used the estimated cross 

elasticities in a Bertrand merger simulation, 

which predicted that the merger was likely to 

result in price increases of 5–10% for those 

brands. The Bertrand model was considered 

reliable for several reasons, including that it 

accurately predicted pre-merger price-cost 

margins. In addition, retailers marked up 

every wholesale price by the same percentage, 

so estimated retail-level demand elasticities 

were the same as those at the wholesale level.

 The Department concluded that the proposed 

acquisition likely would result in significant 

price increases for premium white pan bread 

in five metropolitan areas. The Department’s 

challenge to the proposed merger was settled 

by a consent decree requiring divestiture of 

brands and related assets in the five 

metropolitan areas. 

The Agencies challenge only a tiny fraction of 

proposed mergers. (In fiscal years 1999–2003, over 

14,000 transactions were notified to the Agencies 

under HSR; the Agencies collectively challenged 

fewer than 200.) The following matters illustrate, 

for differentiated consumer products, the sort of 

evidence that has formed the basis of decisions not 

to challenge particular transactions. 

Fortune Brands–Allied Domecq (FTC 2005) 

Fortune Brands, Inc., owner of the Knob Creek 

brand of bourbon, proposed to acquire Allied 

Domecq’s Maker’s Mark brand of bourbon. 

Commission staff analyzed whether the 

acquisition would create or enhance unilateral 

market power for premium bourbon. Staff 

analysis of information discovered in the 

investigation suggested that several other large 

whiskey brands, including bourbons, 

competed strongly with Maker’s Mark and 

with Knob Creek. Econometric analysis of 

retail scanner pricing data indicated 

substantial cross-price elasticities among the 

several whiskey brands. Using these crossprice elasticities staff estimated the diversion 

ratios involving Maker’s Mark and Knob 

Creek. The results showed that, in the event of 

a Maker’s Mark price increase, very few of the 

sales lost would go to Knob Creek. The 

analysis also found no support for the 

proposition that Maker’s Mark would receive 

a substantial proportion of the substitution 

away from Knob Creek in the event of an 

increase in the price of the latter. The staff 

closed the investigation. 

Maybelline–Cosmair (DOJ 1996) The 

Department investigated and decided not to 

challenge the proposed merger of Maybelline, 

30
Inc., a leading U.S. cosmetics company, and 

Cosmair, Inc., the U.S. subsidiary of French 

cosmetics giant L’Oreal S.A. Maybelline and 

L’Oreal were leading brands, and both were 

sold almost exclusively through mass-market 

outlets. Although the merger involved many 

products, the investigation focused largely on 

mascara, in which Maybelline had the leading 

share among brands sold through mass-market 

outlets, and L’Oreal ranked third. They 

combined to account for 52% of sales. Some 

evidence suggested that the images associated 

with the merging brands were quite different, 

and demand estimation was employed to 

determine whether there was substantial direct 

competition between them. 

As in many other investigations involving 

differentiated consumer products, the 

Department relied on weekly data generated 

by scanners at the point of retail sale. 

Estimated demand elasticities were used to 

simulate the effects of the proposed merger 

using the Bertrand model. The analysis 

indicated that a significant anticompetitive 

effect was not likely, and the Department 

decided not to challenge the proposed merger. 

Although the Agencies commonly use scanner 

data in analyzing the likely competitive effects of 

mergers involving differentiated products, such 

data do not exist for many such products. When 

scanner data do not exist, if feasible, it may be 

useful to conduct a consumer survey. 

Vail Resorts–Ralston Resorts (DOJ 1997) Vail 

Resorts, Inc. and Ralston Resorts, Inc. were the 

two largest owner-operators of ski resorts in 

Colorado. In 1996, Vail proposed to acquire 

three ski areas operated by Ralston, which 

would have given Vail control of five ski areas 

in the “front range” area west of Denver, 

accounting for 38–50% of front range skierdays. Relying in part on a survey of skiers, the 

Department found that the Vail and Ralston 

facilities were close, premium-quality 

competitors and that skiers were likely to 

switch from one to the other on the basis of 

small changes in price, whereas consumers 

were much less likely to switch to several other 

resorts considered to be of lesser quality. 

Bertrand merger simulation based on the 

survey data suggested the merger likely would 

cause a significant increase in lift-ticket prices 

at the acquiring firm’s resorts. The 

Department therefore challenged the merger. 

The merger simulation also indicated that 

divestiture of Ralston’s Arapahoe Basin resort 

would substantially prevent price increases, 

and that remedy was implemented through a 

consent decree. 

Before challenging a merger involving 

differentiated consumer products, the Agencies 

consider the possibility of product repositioning 

by non-merging firms in accord with section 2.212 

of the Guidelines. Consideration of repositioning 

closely parallels the consideration of entry, 

discussed below, and also focuses on timeliness, 

likelihood, and sufficiency. The Agencies rarely 

find evidence that repositioning would be 

sufficient to prevent or reverse what otherwise 

would be significant anticompetitive unilateral 

effects from a differentiated products merger. 

Repositioning of a differentiated product entails 

altering consumers’ perceptions instead of, or in 

addition to, altering its physical properties. The 

former can be difficult, especially with wellestablished brands, and expensive efforts at doing 

so typically pose a significant risk of failure and 

thus may not be undertaken. 

Unilateral Effects Relating to Auctions 

In some markets, buyers conduct formal 

auctions to select suppliers and set prices. In such 

markets, the Agencies account for the fact that 

competition takes place through an auction. To an 

extent, the effects of a merger may depend on the 

specific auction format employed, and the 

Agencies also account for the specific format ofthe 

auction. The basic effects of mergers, however, 

may be quite similar in different auction formats. 

Procurement through an auction tends to be 

simple for a homogeneous industrial product. 

Cargill–Akzo Nobel (DOJ 1997) Cargill, Inc. 

proposed to acquire the western hemisphere 

salt-producing assets of Akzo Nobel, N.V. 

Cargill and Akzo Nobel were two of only four 

competitors engaged in the production of rock 

salt used for de-icing purposes in an area of the 

United States centered on the eastern portion 

of Lake Erie, and de-icing salt was sold 

primarily to government agencies through 

formal sealed bid auctions. To gauge the likely 

31
unilateral effect of the merger, the Department 

conducted an econometric analysis of data on 

winning bids in the area of interest and found 

that bids had been significantly lower when 

there were four bids than when there were 

three. Partly on the strength of that evidence, 

the Department challenged the merger on the 

basis of a likely unilateral price increase, and 

the case was settled by a consent decree 

requiring divestitures. 

Procurement using an auction is also observed 

with more complex and customized products. 

With customized products, arbitrage between 

customers is likely to be infeasible, and the 

Agencies have sometimes found that there was a 

separate competition in each auction because 

vendors tailored their prices and other terms to 

the particular situation of each customer. 

Chicago Bridge–Pitt-Des Moines (FTC 2005) 

The Commission issued an administrative 

ruling that the consummated acquisition by 

Chicago Bridge & Iron Co. of certain assets 

from Pitt-Des Moines,Inc., violated section 7 of 

the Clayton Act and section 5 of the FTC Act. 

The companies designed, engineered, and built 

storage tanks for liquified natural gas (“LNG”), 

liquified petroleum gas (“LPG”), and liquid 

atmospheric gases such as nitrogen, oxygen, 

and argon (“LIN/LOX”); they also designed, 

engineered, and built thermal vacuum 

chambers (“TVC”). It was uncontested that 

each of these “field-erected” products was a 

distinct relevant market. The Commission 

found that, in all four markets, respondents 

were each other’s closest pre-acquisition rival 

and that together they largely had dominated 

sales since 1990. Field-erected tanks for LNG, 

LPG, and LIN/LOX, and TVCs are custommade to suit each purchaser’s needs, and 

customers place great emphasis upon a 

supplier’s reputation for quality and service. 

For each of the relevant products, 

customers generally seek competitive bids 

from several suppliers. Customers in the tank 

markets use a second round of bidding to 

negotiate price, and sometimes inform bidders 

of the existence of competition to reduce the 

prices that are bid. TVC customers select one 

bidder with which to negotiate a best and final 

offer, or they negotiate such offers from 

multiple bidders. Chicago Bridge exerted 

substantial competitive pressure on Pitt-Des 

Moines, and vice-versa. The companies closely 

monitored each other’s activities, and 

customers frequently were able to play one 

firm against the other in order to obtain lower 

prices. Although other firms sometimes were 

awarded bids, the Commission found that 

most pre-merger competition was between 

Chicago Bridge and Pitt-Des Moines. 

The bidding evidence also showed that the 

markets were not characterized by easy entry 

and expansion and that Chicago Bridge and 

Pitt-Des Moines would have continued to 

dominate the competition for years. The 

Commission considered specific instances of 

bidding by entrants into the relevant markets 

but concluded that these instances of bidding 

did not demonstrate that the entrants would be 

able to gain enough market share to affect 

prices and provide sufficient competition to 

replace the competition that was lost through 

the merger. In most instances, entrants’ bids 

were rejected because the entrants lacked 

requisite reputation and experience. To 

remedy the transaction’s anticompetitive 

effects, the Commission ordered Chicago 

Bridge, among other things, to reorganize its 

business into two stand-alone divisions, and 

divest one of them. 

Metso Oyj–Svedala (FTC 2001) In a merger 

involving producers of rock-crushing 

equipment, Metso Oyj proposed acquiring 

Svedala Industri AB. Rock-crushing 

equipment is used in mining and aggregate 

production to make small rocks out of big 

rocks. Rock-crushing equipment includes cone 

crushers, jaw crushers, primary gyratory 

crushers, and grinding mills. Each of these 

types of equipment was determined to be a 

separate relevant product market. In some of 

these markets, Metso and Svedala were the 

largest and secondlargest competitors, and the 

combined firm would have had a market share 

many times higher than any other competitor. 

Competition in these markets was analyzed in 

an auction model. Metso and Svedala 

regularly bid against each other for rockcrushing equipment sales in each of the 

relevant markets. By eliminating competition 

between these two leading suppliers, the 

proposed acquisition would have allowed 

Metso to raise prices unilaterally for certain 

32
bids and to reduce innovation. The 

Commission resolved the competitive concerns 

by requiring divestitures in the relevant 

markets of concern. 

Ingersoll-Dresser–Flowserve (DOJ 2001) 

Flowserve Corp. proposed to acquire IngersollDresser Pump Co. These companies were two 

of the largest U.S. manufacturers of 

specialized, highly engineered pumps used in 

oil refining (“API 610 pumps”) and electrical 

generation facilities (“power plant pumps”), 

and only two other suppliers competed to sell 

these pumps in the United States. These 

pumps are procured through formal sealed-bid 

auctions and then manufactured to meet the 

buyers’ specifications. The Department found 

that each of these auctions was an entirely 

separate competition, and therefore each 

constituted a distinct relevant market. The 

Department also found that there were only 

four competitors in these markets and 

concluded that the merger likely would cause 

the remaining competitors unilaterally to 

increase their bids significantly. Each 

competitor would realize that eliminating a 

bidder in these auctions would increase the 

probability of winning the auction associated 

with any given bid. The Department’s 

challenge to the acquisition was settled by a 

consent decree requiring divestiture of 

Flowserve brands as well as manufacturing 

and repair facilities. 

The procurement process for many complex 

products tends to be rather involved, and 

competition may occur in several distinct stages 

with extensive discussions between buyer and 

seller at such stages. The Agencies have often 

found that such competition could be understood 

in terms of an auction model with the 

procurement process working much like multiple 

rounds of bidding in an oral auction. 

Arch Wireless–Metrocall (DOJ 2004) The 

Department investigated and decided not to 

challenge the proposed acquisition of Metrocall 

Holdings, Inc. by Arch Wireless, Inc. The two 

firms were the two largest providers of paging 

services in the United States. The Department 

focused on possible unilateral anticompetitive 

effects in the sale of one-way paging services to 

businesses in many individual metropolitan 

areas within the United States. In these areas, 

the combined firm would have accounted for 

a share of all pager units in service from less 

than 15% to over 80%. Because many paging 

customers had switched to other technologies, 

such as cellular or PCS telephony, the 

Department focused on the customers least 

likely to switch, notably many hospitals and 

emergency “first responders.” 

The Department observed that the 

competition at any one hospital was separate 

from the competition at any other, and that 

each hospital paid a price determined by that 

hospital’s particular needs and the local rivalry 

among alternative technologies. This 

suggested that competition was best analyzed 

as an oral auction. The Department ultimately 

concluded that the merger likely would not 

substantially lessen competition primarily 

because most customers have sufficient 

alternatives to Arch and Metrocall. These 

alternatives included other paging providers, 

self-provision of paging services, and emerging 

technologies, such as wireless local area 

networks. Although some customers may not 

have sufficient alternatives, the Department 

concluded that service providers competing for 

their business would not be able to identify 

such customers and therefore likely would act 

as if they faced substantial competition. 

Quest Diagnostics–Unilab (FTC 2003) Quest 

Diagnostics, Inc. and Unilab Corp. were the 

two leading providers of clinical laboratory 

testing services to physician groups in 

Northern California, with a combined market 

share of approximately 70% (the next largest 

competitor had approximately 4%). Delivery 

of health care in California was distinguished 

by high penetration by managed care 

organizations, which often delegated the 

financial risk for providing health care services 

to physician groups. Independent physician 

associations (“IPAs”) in Northern California 

that assumed the financial risk for laboratory 

services, generally under a capitated 

arrangement, constituted a significant category 

of purchasers of laboratory services. IPA 

arrangements with the laboratories typically 

consisted of exclusive or semi-exclusive 

contracts, pursuant to which the physician 

group paid the laboratory a set amount per 

month for each patient affiliated with the pre33
paid health plans. 

An auction model best represented 

competition for these capitated contracts with 

the IPAs. Quest and Unilab were the first- and 

second-lowest bidders for a substantial portion 

of these contracts, and thus the merger was 

likely to cause prices to rise to the constraining 

level of the next-lowest-price seller. The 

Commission resolved by consent agreement its 

concern that the merger was likely to result in 

anticompetitive effects. Pursuant to the 

consent agreement, the Commission ordered, 

among other things, that the merged firm 

divest assets used to provide clinical laboratory 

testing services to physician groups in 

Northern California. 

Unilateral Effects 

Relating to Bargaining 

In some markets, individual sellers negotiate 

with individual buyers on a transaction-bytransaction basis to determine prices and other 

terms of trade. The merger of competing sellers 

in such markets may enhance the ability of the 

combined seller to bargain for a more favorable 

result. That may be most apt to occur if, before the 

merger, the buyer viewed a bargain with either of 

the two merging parties as significantly better 

than a bargain with any other seller. In that event, 

the merger could cause the buyer to be willing to 

accept worse terms from the merged seller rather 

than to strike no bargain at all. That willingness 

normally would cause a bargain to be struck on 

terms less favorable for the buyer. 

Aspen Technology–Hyprotech (FTC 2004) The 

Commission challenged the consummated 

acquisition by Aspen Technology, Inc. of 

Hyprotech, Ltd. Prior to the acquisition, they 

were two of the three significant vendors of 

process engineering simulation software. This 

software is used in the petroleum, chemical, 

and pharmaceutical industries to design new, 

and model existing, processes to produce 

intermediate and finished products. The 

combined firm accounted for between 67% and 

82% of various process engineering simulation 

software markets, and a single other firm made 

virtually all other sales. The Commission’s 

complaint alleged that the transaction may 

have allowed AspenTech unilaterally to 

exercise market power in seven global markets. 

The firms’ software offerings were 

differentiated in their respective capabilities 

and in how well they met customers’ needs 

and equipment. Evidence showed that 

AspenTech and Hyprotech were the two 

closest competitors on price and on innovation 

in each of the markets. Evidence also showed 

that, prior to the merger, AspenTech and 

Hyprotech discounted prices to win or 

maintain customers, and that, due to the 

merger, customers would no longer be able to 

obtain a lower price from AspenTech by 

threatening to switch to Hyprotech. The third 

firm in the market was declining and 

represented a less credible threat for customers 

to use in price negotiations. This suggested 

that competition was best analyzed in a 

bargaining framework. Staff concluded that 

the transaction would have allowed 

AspenTech to profit by unilaterally raising 

prices and reducing innovation because a 

significant portion of the sales that may 

otherwise have been lost to the other merging 

partner as a consequence of such actions would 

be retained because of the acquisition. The 

Commission resolved these competitive 

concerns by issuing a consent order requiring 

divestiture of certain process engineering 

simulation software assets. 

The Agencies have used bargaining theory to 

analyze the effects of hospital mergers on the 

prices they charge managed care organizations 

(“MCOs”). MCOs market health care plans in 

which subscribers’ health care costs are, in whole 

or in part, paid for directly by the plan or 

reimbursed after being paid by the subscriber. 

MCOs negotiate with health care providers, 

especially hospitals, the charges they or their 

subscribers pay. A subscriber’s out-of-pocket 

costs of using a particular hospital depends 

significantly on whether that subscriber’s plan has 

contracted with that hospital and on what terms. 

To market a plan successfully in a given area, 

an MCO seeks to contract on favorable terms with 

a wide array of hospitals so that the hospitals 

preferred by many potential subscribers are 

available to them on favorable terms. Subscribers 

are attracted to a plan by the ability to get care 

from providers they prefer on favorable terms 

resulting from the MCO having negotiated 

discounts off the providers’ usual rates. The 

34
strength of a hospital’s bargaining position with 

respect to MCOs is determined in large part by the 

proximity of other hospitals offering a similar or 

broader package of services with a similar or 

higher perceived quality. For example, close 

head-to-head competition between two hospitals 

allows an MCO credibly to threaten both that it 

will contract with, and steer its patients to, only 

the other. The elimination of such competition 

through a merger, therefore, can enable the 

hospitals to negotiate higher prices. 

Carilion–Centra (FTC 2005) The Commission 

investigated a consummated joint venture 

between Carilion Health System, the largest 

hospital system in southwest Virginia, and 

Centra Health, Inc. Carilion owns and 

operates two large hospitals in Roanoke, 

Virginia, while Centra owns two hospitals in 

Lynchburg, Virginia. Prior to the transaction, 

Carilion also was the sole owner of a small 

community hospital located in Bedford 

County, halfway between Roanoke and 

Lynchburg, about 30 miles from each city. In 

connection with the joint venture transaction, 

Carilion sold half of its interest in Bedford to 

Centra, so that the two hospital systems each 

had a 50% interest in the Bedford facility. 

The joint venture partners, Carilion and 

Centra, were the two largest hospital 

competitors in the Bedford area prior to the 

joint venture. Staff examined whether the joint 

venture would result in an increase in prices in 

Bedford County as a result of reduced 

competition between Carilion and Centra to 

attract Bedford area patients. Staff found that, 

after the creation of the joint venture, the 

Bedford hospital negotiated its prices 

separately from the Carilion or Centra systems 

and that Bedford prices either declined 

substantially or remained roughly the same. 

Staff closed the investigation. 

Slidell Memorial–Tenet (FTC 2003) Tenet 

Health Care Systems, which operated 

NorthShore Regional Medical Center in Slidell, 

Louisiana, proposed to acquire Slidell 

Memorial Hospital. The transaction would 

have combined the only full-service acute care 

hospitals in Slidell. Evidence suggested to 

Commission staff that Slidell residents and 

their employers demanded health insurance 

plans that included either Slidell Memorial or 

NorthShore Regional as network participants, 

and that a nearby small surgical hospital and 

cardiac specialty hospital were inadequate 

substitutes because they were not full-service 

hospitals. 

If Tenet purchased Slidell Memorial, health 

insurance companies would face the choice 

either of meeting Tenet’s price terms, or, 

alternatively, excluding both NorthShore 

Regional and Slidell Memorial from their 

provider networks. The latter action would 

likely make the health plan far less marketable, 

particularly to employers and their employees 

who desire access to a Slidell hospital. In 

addition, a health plan that did not include 

these hospitals could offer services only from 

physicians willing and able to treat the plan’s 

patients at hospitals located outside of Slidell. 

Information received from local employers, 

residents, and health insurance plans 

suggested to Commission staff that health 

insurance companies would be unlikely to risk 

losing NorthShore Regional, Slidell Memorial, 

and the physician base of the hospitals, and 

instead likely would agree to a price increase. 

Commission staff set forth its competition 

analysis in public comments to the Louisiana 

Attorney General, subsequent to which local 

citizens, prior to conclusion of the 

Commission’s investigation, voted to reject the 

proposed acquisition. The deal was never 

consummated. 

Rite Aid–Revco (FTC 1996) The nation’s two 

largest retail drug store chains, Rite Aid Corp. 

and Revco D.S., Inc., sought to merge. The 

firms competed with each other in many local 

markets, including in 15 metropolitan areas in 

which the merged firm would have had more 

than 35% of the retail pharmacies. 

Commission staff analyzed the merger’s effect 

on retail sales made through pharmacy benefit 

plans. Pharmacy benefit managers (“PBMs”) 

contract with multiple pharmacy firms to form 

networks offering pharmacy benefits as part of 

health insurance coverage. Pharmacy 

networks often include a high percentage of 

local pharmacies because access to many 

participating pharmacies is often important to 

plan enrollees. 

Rite Aid and Revco each offered a 

significant portion of the broad local coverage 

35
that payers demanded on behalf of their 

enrollees. Marketable networks could be 

assembled with just one of the firms 

participating. After the merger, a high 

proportion of plan enrollees would have 

considered the merged entity to be their most 

preferred pharmacy chain, leaving PBMs with 

less attractive options for assembling networks 

that did not include the merged firm. The 

merged firm as a result unilaterally could have 

demanded higher dispensing fees as a 

condition of participating in a network. The 

Commission voted to challenge the transaction, 

after which the parties abandoned it. 

Mergers can create or enhance market power 

on the part of buyers as well as on the part of 

sellers. The Agencies, therefore, consider the 

possibility that a merger would produce a 

significant anticompetitive effect by eliminating 

competition between the merging firms in a 

relevant market in which they compete for an 

input. By eliminating an important alternative for 

input suppliers, a merger can lessen competition 

for an input significantly. 

Aetna–Prudential (DOJ 1999) Aetna, Inc. 

proposed to acquire assets relating to health 

insurance from The Prudential Insurance Co. 

of America. The acquisition would have 

eliminated head-to-head competition between 

Aetna and Prudential in the sale of health 

maintenance organization (“HMO”) and 

HMO-based point-of-service health plans in 

Dallas and Houston. The Department 

challenged the proposed acquisition on the 

basis of likely anticompetitive effects in the 

purchase of physicians services for these two 

types of health plans and on the basis of likely 

anticompetitive effects in the sale of those 

plans. The Department concluded that the 

proposed merger would have allowed Aetna to 

reduce physician reimbursement rates because 

it would have significantly increased the 

number of patients enrolled in Aetna health 

plans and therefore also the number of patients 

a physician would have lost by terminating 

participation in Aetna health plans. The 

Department’s challenge to the acquisition was 

settled by a consent decree requiring, among 

other things, the divestiture of interests Aetna 

had acquired in two other health plans 

operating in Dallas and Houston. 

36
3. Entry Analysis


As explained by section 3.0 of the Guidelines, 

an anticompetitive merger can create “sales 

opportunities available to entrants,” and 

consequently a “merger having anticompetitive 

effects can attract . . . entry, profitable at 

premerger prices, that would not have occurred” 

without the merger. In evaluating the competitive 

effects of a proposed merger, the Agencies 

therefore ask whether the merger would attract 

entry that “would be timely, likely, and sufficient 

in its magnitude, character and scope to deter or 

counteract the competitive effects” of the merger, 

thereby causing “prices to fall to their premerger 

levels or lower.” To address this question, the 

Agencies examine industry conditions to 

determine whether a merger is likely to attract 

entry, as well as whether entry would be likely to 

prevent, or to reverse in a timely fashion, any 

anticompetitive effects of a merger. 

In evaluating the likely competitive effects of a 

proposed merger, the Agencies distinguish among 

different sorts of firms that potentially would 

supply the relevant product in the event of an 

attempt to exercise market power. Section 3 of the 

Guidelines addresses “committed entry,” which is 

defined as “new competition that requires 

expenditure of significant sunk costs.” Costs 

associated with entry are “sunk” if they cannot be 

recovered by reversing the entry decision. Section 

1.32 of the Guidelines addresses “uncommitted 

entry,” which refers to supply responses not 

incurring significant sunk costs. Uncommitted 

entry normally takes the form of incumbent firms 

using their existing assets to make products or 

perform services those firms do not currently 

make or perform. 

The focus of this chapter is Section 3 of the 

Guidelines, which addresses committed entry, 

referred to here simply as “entry.” Other sections 

of the Guidelines separately consider three specific 

types of supply responses to mergers: output 

increases by maverick incumbent firms that 

potentially would frustrate coordination among 

the merged firm and its rivals (§ 2.12 & n.20); 

output increases by market incumbents with 

excess capacity that potentially would frustrate 

the unilateral exercise of market power with 

undifferentiated products (§ 2.22 & n.24); and 

product repositioning by non-merging firms that 

potentially would frustrate the unilateral exercise 

of market power with differentiated products 

(§ 2.212 & n.23). As with entry, the examination of 

these supply responses focuses on the likelihood, 

timeliness, and sufficiency of the supply response. 

Entry may be considered successful if the 

entrant generates sufficient revenue to cover all 

costs apart from the sunk costs of entry. Such 

entry succeeds in the sense that the entrant 

becomes and remains a viable competitor in the 

market. Defined in this way, successful entry into 

some markets may require nothing more than the 

investment of time and money. In such a market, 

an anticompetitive merger nevertheless will not 

attract entry if the sunk cost is so great that the 

entry offers little prospect of a reasonable return 

on that investment. Significant sunk costs may be 

associated, for example, with building a 

manufacturing facility, developing a product, 

achieving regulatory approvals, and gaining 

customer acceptance. An anticompetitive merger 

also will not attract entry if the risk of failed entry, 

and the associated loss of the entry investment, is 

so great that potential rewards do not justify 

making that investment. The Agencies therefore 

examine the sunk costs and likely returns 

associated with entry. 

In other markets, successful entry may not be 

possible despite the investment of time and money 

because success may depend on factors over 

which a potential entrant has little control. For 

example, an anticompetitive merger may not 

attract entry because entry is regulated or even 

37
legally barred, or because entrants’ efforts would 

be stymied by the intellectual property rights of 

incumbents or by the unavailability of essential 

inputs. An anticompetitive merger also may not 

attract entry because entrants would suffer 

significant cost disadvantages in competing with 

incumbents. This situation can occur for a variety 

of reasons, but tends to be most important when 

entrants would be unlikely to achieve the 

economies of scale (i.e., reductions in average cost 

from operating at a higher rate of output) and 

scope (i.e., reductions in cost from producing 

several products together) already achieved by 

incumbents. The Agencies therefore examine 

obstacles to entry and possible cost disadvantages 

for entrants. 

If a merger does attract entry, that entry still 

may be insufficient to deter or fully counteract the 

merger’s anticompetitive effect, or the entrant 

may take so long to achieve market significance 

that the merger nevertheless produces sustained 

anticompetitive effects. The Agencies therefore 

examine how long entry would take and how it 

likely would affect the merger’s competitive 

consequences. The discussion that follows 

addresses in more detail the Guidelines’ concepts 

of likelihood, timeliness, and sufficiency of entry. 

Likelihood of Entry 

The Agencies do not assess merely whether 

firms could commit incremental resources to the 

relevant market, but more importantly whether 

the proposed merger would be likely to induce 

firms to do so in a timely fashion and in a 

sufficient magnitude to deter or counteract the 

merger’s anticompetitive effects. Thus, 

information regarding such factors as technical 

capability, know-how, sunk costs, and other 

requirements for successful entry is necessary, but 

not sufficient, for the Agencies’ evaluation of entry 

conditions. The Agencies must also determine 

whether firms would have an adequate profit 

incentive to enter at prices prevailing before the 

merger, i.e., the prices to which the market likely 

would return following entry sufficient to deter or 

counteract the merger’s anticompetitive effects. In 

evaluating the likelihood of entry, the Agencies 

thus focus on the sales opportunities created by 

the proposed merger. 

Sunk Costs and Risks 

Associated with Entry 

Consumer Products 

The Agencies commonly find that proposed 

mergers involving highly differentiated consumer 

products would not attract the entry of new 

brands because entry would not be profitable at 

pre-merger prices. In a market populated by wellestablished brands, successful entry usually 

requires a substantial investment in advertising 

and promotional activity over a long period of 

time to build share and achieve widespread 

distribution through retail channels. Moreover, 

making such investments by no means assures 

success. 

Nestle–Dreyer’s (FTC 2003) Nestle Holdings, 

Inc. proposed to merge with Dreyer’s Grand 

Ice Cream, Inc. The firms were two of the top 

three rivals in the superpremium ice cream 

market. Those three combined for 98% of 

sales. Grocery retailer private label sales 

accounted for the remaining 2%. Evidence 

showed entry to be difficult, both because of 

the need to develop brand equity to compete 

effectively, and the need to obtain effective 

distribution, which is difficult in this market 

because the product must be maintained at a 

particular freezing temperature throughout the 

distribution process. The Commission 

determined that entry was unlikely to prevent 

or reverse the merged firm’s likely unilateral 

anticompetitive price increase and challenged 

the merger. To resolve the competitive 

concerns, the Commission entered into a 

consent agreement with the parties requiring 

divestiture of two brands. 

Staples–Office Depot (FTC 1997) The 

Commission successfully challenged a merger 

between Staples, Inc. and Office Depot, Inc., 

two of the three national office supply 

superstore retail chains. The Commission 

found, and the court agreed, that entry was 

unlikely to prevent anticompetitive effects 

arising from the merger. Important to this 

finding was that the three incumbent office 

superstores had saturated many of the local 

markets such that a new office superstore 

entrant would have difficulty in achieving 

economies of scale in, among other things, 

38
advertising and distribution. 

Kimberly-Clark–Scott (DOJ 1995) The 

Department found that entry would be 

unlikely to be attracted by the proposed 

merger of Kimberly-Clark Corp. and Scott 

Paper Co., which the Department challenged 

on the basis of unilateral anticompetitive 

effects in facial tissue and in baby wipes. 

Brand recognition was very important for both 

products, and the Department concluded that 

the costs and risks associated with establishing 

new brands likely would prevent the sort of 

entry that could prevent or reverse the likely 

anticompetitive effects of the merger. The 

Department’s challenge to the proposed 

merger was settled by a consent decree 

requiring the divestiture of assets relating to 

facial tissue and baby wipes. 

Successful prior entry can provide evidence 

that an anticompetitive merger would attract entry 

despite the need to make a substantial investment 

in advertising and promotional activity. 

Successful prior entry, however, is by no means 

proof that entry likely would occur following a 

proposed merger, or that any such entry would be 

sufficient to prevent significant anticompetitive 

effects. Evidence of the severity of entry obstacles 

sometimes is found in an inability of past entrants 

to gain consumer acceptance. 

L’Oreal–Carson (DOJ 2000) In considering 

L’Oreal’s proposed acquisition of Carson, Inc., 

the Department found that several brands of 

hair relaxer kits introduced in recent years had 

been unable to generate significant sales. That 

evidence reinforced the Department’s 

conclusion that the proposed merger would 

not attract entry sufficient to deter or 

counteract the likely anticompetitive effects of 

the merger. The Department’s challenge to the 

merger was resolved by a consent decree 

requiring the divestiture of relevant brands 

and associated assets, including a 

manufacturing facility. 

Swedish Match–National (FTC 2000) Swedish 

Match North America, Inc., proposed to 

acquire National Tobacco Company, L.P. The 

companies were the first- and third-largest 

producers of loose leaf chewing tobacco in the 

United States, with shares of 42% and 18%. 

Swedish Match’s loose leaf products included 

the Red Man premium brands. National 

Tobacco produced the Beech-Nut line of 

premium brands. The Commission 

successfully challenged the merger in district 

court, asserting that the transaction would 

result in anticompetitive effects in the U.S. 

market for loose leaf chewing tobacco. The 

evidence showed that entry would be thwarted 

by, among other things, the substantial sunk 

costs required to overcome strong brand 

loyalty. The evidence included prior 

unsuccessful efforts at introducing new brands 

by established rivals. 

Mergers involving differentiated consumer 

products also may be unlikely to attract entry 

because no customer has an incentive to sponsor 

entry. Wholesale customers often are retailers, 

and there are circumstances under which retailers 

suffer little from wholesale price increases because 

they pass the price increases on to final 

consumers. Moreover, retailers can benefit from 

a merger of manufacturers if the retailers sell 

private label products in competition with the 

merging manufacturers. A merger involving 

differentiated consumer products also is unlikely 

to attract entry when its anticompetitive effects 

would be felt in just a few local markets or if there 

are important local brands catering to local tastes 

and traditions. 

Interstate Bakeries–Continental (DOJ 1995) 

The Department challenged the proposed 

purchase of Continental Baking Co. by 

Interstate Bakeries Corp. on the basis of anticompetitive effects in the sale of white pan 

bread within five metropolitan areas. 

Anticompetitive effects in these five 

metropolitan areas would have been unlikely 

to attract entry by a national brand because the 

overall effect of the merger on national price 

would have been insignificant. In each of the 

five metropolitan areas, only one of the leading 

premium brands was sold nationally, while the 

others were regional or strictly local. 

Anticompetitive effects in these areas would 

have been unlikely to attract local entry 

because the sunk costs of brand development 

would be spread over relatively few sales and 

because important media used for advertising 

and promotion cannot be effectively targeted 

at limited metropolitan areas. The 

Department’s challenge to the proposed 

39
merger was settled by a consent decree 

requiring divestiture of brands and related 

assets in the five metropolitan areas. 

Industrial Products 

The sources of the sunk costs associated with 

entry into markets for industrial products vary 

from one market to the next. In many markets, the 

only significant sunk costs are those associated 

with the construction or acquisition of productive 

facilities, such as manufacturing plants. In other 

markets, substantial investments are required for 

product development and to establish support 

organizations for distribution and service. And in 

some markets, additional sunk costs are associated 

with demonstrating product performance and 

reliability to potential customers. The sunk costs 

from each of these sources can be large or small. 

Mergers of industrial products manufacturers may 

be unlikely to attract entry if customers are 

unwilling to purchase products without a wellestablished record of satisfactory performance. A 

merger is especially unlikely to attract entry if 

product failure imposes a substantial cost on 

customers. 

Ingersoll-Dresser–Flowserve (DOJ 2001) The 

Department challenged the proposed 

acquisition of Ingersoll-Dresser Pump Co. by 

Flowserve Corp. on the basis of likely 

unilateral anticompetitive effects in markets for 

specialized pumps used in oil refining and 

electrical generation facilities. The Department 

found that the design and testing of an array of 

such pumps would entail substantial sunk 

costs. The Department also found that an 

entrant could not effectively compete in the 

relevant markets without incurring additional 

sunk costs in the establishment of a network of 

service and repair facilities. And because 

pump failure could shut down part of a 

refinery or electric generation plant, the 

Department found that many customers in the 

relevant markets would not purchase from a 

supplier that had not demonstrated the 

reliability and efficiency of its pumps in the 

particular use for which the pump was being 

sought. This fact added additional sunk entry 

costs and extended yet further the substantial 

time successful entry would take. The 

Department’s challenge to the acquisition was 

settled by a consent decree requiring 

divestiture of Flowserve brands as well as 

manufacturing and repair facilities. 

Metso Oyj–Svedala (FTC 2001) The 

Commission investigated a proposed merger 

between leading manufacturers of mining 

equipment, Metso Oyj and Svedala Industri 

AB. Both firms made equipment used in 

mining, including gyratory crushers, jaw 

crushers, cone crushers, and grinding mills. 

Operational failure by any of these machines 

would require shutting down the entire mining 

circuit. Purchasers would deal only with wellestablished companies producing equipment 

with a proven track record of reliability. A 

new entrant would face significant sunk costs 

in developing and testing a new piece of 

equipment and in gaining customer 

acceptance. Although several potential 

entrants could manufacture this equipment 

within two years, it was unlikely that 

customers would purchase new and untested 

equipment within this period. The 

Commission resolved the competitive concerns 

by requiring divestitures in the relevant 

markets of concern. 

Exxon–Mobil (FTC 1999) Prior to merging, 

Exxon Corp. and Mobil Corp. were leading 

producers of jet turbine oil. Jet turbine engines 

require a specialized lubricant that can operate 

in an extreme environment. Failure by the 

lubricant could lead to engine failure, requiring 

the engine to be taken out of service for an 

extended period of time for repairs or 

overhaul. This lubricant, although expensive 

for a lubricating oil, was inexpensive relative to 

the cost of losing use of an engine for any 

period of time as well as to the cost of repairing 

or replacing an engine. To secure sales to 

customers, jet turbine oil producers submitted 

their products for extensive product testing, 

including testing on the customer’s specific 

model engine. After developing a satisfactory 

lubricant, therefore, a new entrant would have 

to invest substantial sunk costs in product 

testing and incur substantial time delay in 

entering. The Commission, therefore, 

concluded that entry would not eliminate 

competitive concerns. The Commission and 

the parties entered into a settlement that 

required, among other things, divestiture of 

Exxon’s jet turbine oil business. 

40
Precision Castparts–Wyman-Gordon (FTC 

1999) Precision Castparts Corp. and WymanGordon Co., two leading manufacturers of 

titanium, stainless steel, and nickel-based 

superalloy cast components for jet engine and 

airframe applications, proposed to merge. 

Several companies worldwide had the 

capability of manufacturing these types of cast 

parts, but customers were not likely to 

purchase them from companies lacking a 

proven, years-long track record of producing 

products that did not fail. The Commission 

concluded that entry would not be timely, 

likely, and sufficient to thwart anticompetitive 

effects from the merger. It resolved its 

competitive concerns in a consent order that, 

among other things, required divestiture of a 

titanium foundry and a large cast parts 

foundry. 

The Agencies have sometimes found that sunk 

costs did not pose a significant entry obstacle. In 

such cases, expected returns justified any required 

investment in new productive facilities, and 

successful entry typically did not require the 

establishment of a brand or reputation for quality. 

ADS–Hancor (FTC 2005) The FTC closed its 

investigation into the acquisition by Advanced 

Drainage Systems, Inc. of Hancor Holding 

Corp. Both firms were major producers of 

corrugated high density polyethylene 

(“HDPE”) pipe used for underground water 

drainage. Staff found that demand for HDPE 

was growing, that a new HDPE manufacturing 

plant could be constructed at relatively low 

cost and could be in operation within a short 

period, that several firms had entered de novo 

in the prior ten years, and that several fringe 

incumbents were expanding output. Also, 

existing manufacturers of certain other, nonHDPE pipes could enter at relatively little sunk 

cost. Many of them served common customers 

already and thus did not have to establish a 

new marketing organization. The Commission 

concluded that entry conditions were such that 

anticompetitive effects from the merger were 

unlikely. 

Omnicare–NeighborCare (FTC 2005) The 

largest provider of pharmacy services to longterm care facilities (“LTC pharmacy”), 

Omnicare, Inc., offered to acquire a large rival 

LTC pharmacy, NeighborCare, Inc. The 

combined firm would have under contract 

more than half of skilled nursing facility beds 

in multiple states, and the post-merger market 

structure would be highly concentrated in 

many areas. The Commission’s decision not to 

challenge the acquisition was based in part on 

relatively easy entry conditions in the thencurrent marketplace. Sunk costs were 

relatively low, illustrated by many historical 

examples of entry, including entry by former 

employees of incumbent LTC pharmacies, 

expansion by retail pharmacies into the LTC 

business, and vertical integration by skilled 

nursing facility operators. 

Wrigley–Kraft (FTC 2005) Wm. Wrigley Jr. 

Co. proposed to acquire certain confectionary 

assets from Kraft Foods, Inc., including certain 

well-known breath mint and chewing gum 

brands. Commission staff assessed whether 

sunk costs that would have to be incurred in 

acquiring the capacity to produce or market 

breath mints or chewing gum would pose 

significant impediments to post-merger 

competitive entry. Staff found that new 

entrants would have relatively easy access to 

third-party “co-manufacturers” for the 

production of the relevant products and 

thereby could avoid costly expenditures in 

developing manufacturing expertise or in 

building a new facility. Entrants also could 

competitively distribute their products by 

outsourcing those functions to third-parties. 

Staff also found evidence of significant recent 

branded entry. Based in part on this evidence 

concerning entry conditions, staff closed its 

investigation. 

Playbill–Stagebill (DOJ 2002) In its analysis 

of the consummated acquisition of certain 

assets of Stagebill Media by Playbill Inc., the 

Department found that sunk costs of entry 

were insignificant. Prior to the acquisition, 

Playbill was the nation’s largest publisher of 

theater programs and Stagebill was its largest 

competitor in many cities. The Department 

found that the merger was not likely to be 

anticompetitive because the printing itself 

could be out-sourced, so an entrant did not 

need to incur significant sunk costs. Indeed, 

the Department found that entry based on outsourcing had occurred. The Department also 

41
found that theaters could contract directly with 

printers and some had done so. Finally, the 

Department found that prices of theater 

programs had not increased. Consequently, 

the Department took no action against the 

acquisition. 

Although many purchasers of differentiated 

consumer products are reluctant to switch from 

brands they know and trust, purchasers of 

industrial commodities may be more likely to 

switch and be willing to sponsor entry when they 

perceive a lack of competition. 

National Oilwell–Varco (DOJ 2005) Entry 

considerations were a major factor in the 

Department’s decision not to challenge the 

acquisition by National Oilwell Inc. of Varco, 

Inc. Those firms were among the very few 

significant competitors in the sale of various 

products and services relating to offshore 

drilling for oil and gas, and that fact initially 

gave the Department serious concerns about 

the competitive effects of the acquisition. 

Nevertheless, the Department found that 

several major customers for these products and 

services believed that they would be able to 

sponsor successful entry by committing to 

make purchases from firms with little or no 

current market presence. The Department also 

identified sellers of related products and 

services interested in entering. 

In some markets, it is clear that a merger 

would not attract entry simply because the sunk 

costs of entry are far too great in comparison to the 

likely rewards. 

General Dynamics–Newport News (DOJ 2001) 

General Dynamics Corp. proposed to acquire 

Newport News Shipbuilding Inc. These were 

the only firms that built nuclear submarines for 

the U.S. Navy. The manufacture of a nuclear 

submarine requires much highly specialized 

equipment, personnel, and know-how, all of 

which combined to make the sunk cost of entry 

extraordinarily high. As a result, the merger 

was not likely to attract entry, especially in 

view of the fact that an entrant might never 

make a single sale. The proposed acquisition 

was abandoned after the Department filed suit 

to enjoin it. 

Other Significant Obstacles to 

Successful Entry 

Entry may not be attracted by an 

anticompetitive merger for many reasons. In some 

markets, entry is explicitly regulated, and in 

others, government regulation can effectively bar 

entry. The Agencies have found legal obstacles to 

entry to be significant in some instances. 

For example, many states have certificate of 

need (“CON”) programs barring entry into health 

care markets unless a potential entrant makes an 

expensive and time-consuming demonstration 

that there is an unmet need for its services. 

Regulation of this sort increases sunk costs and the 

time it takes to enter, and it also creates a 

significant risk that entry ultimately will be 

prohibited. For several hospital mergers 

challenged by the Agencies, as well as a merger of 

outpatient surgical centers, CON regulation was a 

factor in the Agencies’ determination that the 

mergers would not attract entry. 

Mercy Health–Finley (DOJ 1994) The 

Department challenged the formation of a 

partnership between Mercy Health Services 

and Finley Tri-States Health Group, Inc. The 

companies owned the only general acute care 

hospitals in Dubuque, Iowa, and the 

Department concluded that Iowa’s CON 

statute would prevent the construction of any 

new general acute care hospital in Dubuque. 

That no new hospital would be built was 

stipulated attrial, but the district court rejected 

the Department’s challenge to the merger on 

other grounds. The case became moot before 

the Department’s appeal could be decided 

because the parties abandoned the merger. 

Environmental and zoning regulations are 

other examples of rules that may make entry 

difficult. 

Florida Rock–Harper Bros. (DOJ 1999) Florida 

Rock Industries, Inc. proposed to acquire 

Harper Bros., Inc. These companies competed 

in the sale of aggregate and silica sand in 

southwest Florida and together accounted for 

at least 60% of the sales of each product. The 

Department concluded that the acquisition 

would be likely to lessen competition 

substantially and challenged the acquisition. 

The Department found many reasons why the 

42
acquisition would not attract entry, including 

environmental regulation at the local, state, 

and federal levels that made it very difficult to 

open a new aggregate or silica sand production 

facility in the area. The Department’s 

challenge to the merger was resolved by a 

consent decree requiring the divestiture of a 

quarry and sand mine. 

In the telecommunications and pharmaceutical 

industries, federal regulation may pose a 

significant obstacle to entry. Entry into some 

telecommunications markets is constrained by the 

need to have a licence from the Federal 

Communication Commission for use of part of the 

electromagnetic spectrum, while the introduction 

of pharmaceuticals requires approval by the Food 

and Drug Administration. 

Cingular–AT&T Wireless (DOJ 2004) Cingular 

Wireless Corp., a joint venture of SBC 

Communications Inc. and BellSouth Corp., 

proposed to acquire AT&T Wireless Services, 

Inc. Both Cingular and AT&T Wireless 

provided mobile wireless telecommunications 

service (“MWTS”) throughout the United 

States. The Department concluded that the 

acquisition likely would be anticompetitive in 

ten local MWTS markets and challenged the 

acquisition partly on that basis. MWTS is 

provided using electromagnetic spectrum, the 

rights to which are licensed by the Federal 

Communications Commission. Among the 

reasons the Department concluded that the 

acquisition would not attract entry was 

difficulty in obtaining licenses to the necessary 

spectrum. The Department’s challenge to the 

merger was resolved by a consent decree 

requiring divestitures in particular locations. 

Cephalon–Cima (FTC 2004) Cephalon, Inc. 

proposed to acquire Cima Labs, Inc. Cephalon 

was the only firm selling a breakthrough 

cancer pain (“BTCP”) drug in the United 

States. Evidence suggested that Cima was the 

most likely first entrant with a BTCP drug to 

rival Cephalon’s product, and that entry 

subsequent to Cima’s was unlikely for at least 

the next four years. The time needed to secure 

FDA approval was a significant factor in 

reaching this conclusion. The Commission 

resolved its competitive concerns with a 

consent order that required Cephalon, among 

other things, to grant an irrevocable, fully paid 

license to a specific third party for the 

manufacture and sale of a generic formulation 

of Cephalon’s BTCP drug. 

Intellectual property rights such as patents can 

at times pose a significant entry obstacle. 

Intellectual property can be important in both 

high-tech and low-tech industries. 

3D Systems–DTM (DOJ 2001) 3D Systems 

Corp. proposed to acquire DTM Corp., a 

competitor in industrial rapid prototyping 

systems, which are used to make functional 

and non-functional prototypes of new products 

or components. The Department challenged 

the acquisition in part because the two 

companies held extensive patent portfolios that 

likely created an insuperable entry obstacle 

even for well-established competitors outside 

the United States. The Department’s challenge 

to the merger was resolved by a consent decree 

requiring divestiture of a package of 

intellectual property rights. 

Franklin Electric–United Dominion (DOJ 

2000) The Department challenged the 

proposed joint venture between subsidiaries of 

Franklin Electric Co. and United Dominion 

Industries because it would have eliminated 

competition between the only two domestic 

producers of submersible turbine pumps used 

for pumping gasoline from underground 

storage tanks at retail stations. The 

Department found that the proposed merger 

would be unlikely to attract entry for several 

reasons, including the necessity of designing 

around Franklin Electric’s patents. After trial, 

a district court granted the Department’s 

motion for a permanent injunction. 

American Home Products–Solvay (FTC 1997) 

American Home Products Corp. proposed to 

acquire the animal health business of Solvay 

S.A. The Commission found that the proposed 

acquisition raised serious competitive concerns 

in three, highly concentrated, relevant product 

markets for the production and sale of animal 

vaccines. The Commission found, moreover, 

that post-merger entry was unlikely to mitigate 

the competitive concerns because entry would 

not be likely, timely, or sufficient. For each 

relevant market, entry would require the 

expenditure of significant resources over a 

43
period of many years with no assurance that a 

viable commercial product would result. The 

time required to enter the relevant markets 

could be further lengthened by the need to 

obtain U.S. Department of Agriculture 

approvals to sell the vaccines. Significantly, 

the existence of broad patents governing the 

manufacture of each of the relevant products 

enhanced the difficulty of entry. As a result, 

the Commission issued a complaint 

challenging the proposed acquisition, and 

ultimately reached a settlement with the 

parties that called for, among other things, 

divestiture of Solvay’s intellectual property 

rights relating to the three vaccines. 

Patents need not impose a significant obstacle 

to entry, even in a high-tech industry with many 

important patents. The Agencies may find that 

the requisite technology is nevertheless reasonably 

available, for example, because required patents 

could easily be licensed or invented around. 

Cinram–AOL Time Warner (DOJ 2003) The 

Department decided not to challenge the 

acquisition by Cinram International Inc. of the 

DVD and CD replication assets of AOL Time 

Warner Inc. in part because the requisite 

technology was readily available for license 

from patent pools. The Department also found 

that sunk costs were relatively low and that the 

prospects for recovering them were good due 

to high demand growth. 

A merger may lead to price increases without 

attracting entry because potential entrants would 

be unable to obtain a source of supply for essential 

inputs, for example, when entry requires access to 

scarce natural resources. 

Imetal–English China Clays (DOJ 1999) 

Imetal proposed to acquire English China 

Clays, plc, both of which produced waterwashed kaolin and calcined kaolin. These 

products are produced from kaolin clay, which 

is quite scarce. Much of the world’s highest 

quality kaolin is found in a small area within 

Georgia. Among the reasons why the 

Department concluded that the proposed 

merger was unlikely to attract significant entry 

was that an entrant would have difficulty in 

acquiring suitable kaolin deposits. The 

Department’s challenge to the merger was 

resolved by a consent decree requiring 

divestiture of a plant and associated assets 

such as kaolin reserves. 

Difficulty in securing essential inputs can 

impede entry in a variety of contexts, particularly 

when incumbents own or control access to the 

inputs. In some cases, an entrant might find it 

difficult to secure a source of supply for a 

manufactured input product. In other cases, 

gaining access to physical facilities built and 

owned by third parties can pose a significant entry 

obstacle. In addition, access to human resources 

may pose a significant entry obstacle in some 

markets. 

DaVita–Gambro (FTC 2005) DaVita Inc. 

proposed to acquire Gambro Healthcare, Inc. 

The firms were rivals in the provision of 

outpatient dialysis services. The Commission 

alleged that anticompetitive effects would result 

from the transaction in 35 local markets where 

the firms competed. Laws applicable to dialysis 

clinics required that each such clinic must have 

a nephrologist as its medical director. In 

addition, the medical director is the clinic’s 

primary source of referrals and thus is essential 

to the clinic’s competitiveness. A lack of 

available nephrologists with an established 

referral stream was an obstacle to entry into 

each of the relevant geographic markets at issue. 

To resolve the Commission’s concerns, the 

parties entered into a consent agreement that 

required, among other things, divestiture of 

dialysis clinics in the markets at issue. 

Central Parking–Allright (DOJ 1999) The 

unavailability of facilities that had to be 

provided by others made entry unlikely after 

the proposed merger of Central Parking Corp. 

and Allright Holdings, Inc. Both companies 

operated off-street parking facilities in the 

central business districts of many U.S. cities. In 

these areas, land was scarce and typically had 

uses higher-valued than parking lots, so 

adding additional parking spaces typically 

required the construction of a new office 

building, and higher parking rates were not 

likely to spur the construction of new office 

buildings. The Department’s challenge to the 

merger was resolved by a consent decree 

requiring divestiture of parking facilities in 

many cities. 

44
Cost Disadvantages of Entrants 

A merger may lead to price increases but not 

attract entry because entrants would suffer a 

significant cost disadvantage relative to 

incumbents. The most common reason for a cost 

disadvantage is the presence of significant 

economies of scale and scope. In other situations, 

entrants may be significantly disadvantaged by 

economies of density in route delivery systems 

(i.e., reductions in cost from increasing volume, 

holding the size of a network fixed). 

Waste Management–Allied (DOJ 2003) Waste 

Management, Inc. agreed to acquire the assets 

Allied Waste Industries, Inc. used in small 

container commercial waste hauling in 

Broward County, Florida. This portion of the 

municipal solid waste business entails the 

collection, transportation, and disposal of 

w a ste gene r a t ed by c omme r c i a l 

establishments. The Department challenged 

the acquisition in part because an entrant 

would be unable to operate efficiently and 

provide meaningful price competition. To be 

efficient, a competitor must achieve a high 

route density by contracting with a large 

number of commercial establishments in a 

relatively small area. Doing so was found to be 

exceptionally difficult for an entrant because 

incumbents had secured many existing 

customers through long-term contracts. The 

Department’s challenge to the merger was 

resolved by a consent decree requiring 

divestiture of specified routes and the assets 

used on them. 

Federal-Mogul–T&N (FTC 1998) In the merger 

of Federal-Mogul Corp. and T&N PLC, one of 

the markets the staff examined was the 

manufacture and sale of engine bearings to the 

aftermarket for repairing and overhauling 

engines. Each engine bearing is designed for 

and used in a particular truck or car engine, 

and each engine can use only bearings 

designed and built to its specifications. The 

parties acquired the tooling for their broad line 

of aftermarket bearings when engines were 

first in production, allowing them to amortize 

the cost of that tooling over a longer time and 

over a larger number of bearings. A new 

entrant that attempted to match an 

incumbent’s product line would have been 

able to amortize the tooling for many bearings 

only over a portion of the engine’s life, and 

would necessarily have higher relative costs. 

This would have put any entrant in the 

aftermarket at a substantial cost disadvantage 

to the incumbent firms. Thus, the Commission 

found that entry would not be timely or likely 

to prevent anticompetitive effects. The 

Commission resolved the matter with a 

consent order that required, among other 

things, divestiture of T&N’s engine bearing 

business. 

Timeliness of Entry 

Section 3.2 of the Guidelines states that entry 

generally is considered timely only if “achieved 

within two years from initial planning to 

significant market impact.” Even if a proposed 

merger likely would attract entry that eventually 

reverses any likely anticompetitive effect from a 

merger, the Agencies nonetheless would challenge 

the merger if they determined the entry would not 

be timely. For many of the proposed mergers 

discussed in this chapter, the Agencies found that 

entry having a material effect on competition 

would take significantly longer than the two-year 

period specified by the Guidelines. 

Alcan–Pechiney (DOJ 2003) The Department 

challenged the proposed acquisition of 

Pechiney, S.A. by Alcan, Inc. on the basis of 

likely anticompetitive effects in the production 

and sale of a class of aluminum alloys called 

“brazing sheet.” Manufacturing brazing sheet 

requires an expensive rolling mill, which the 

Department found would take at least three 

years to construct. The Department also found 

that successfully selling brazing sheet requires 

the mastery of alloy technologies and that it 

likely would take several additional years after 

a new mill commenced production to “qualify” 

its output with major customers and begin 

making significant sales. Thus, the 

Department concluded that entry was unlikely 

and would necessarily take far longer than two 

years if it did occur. The Department’s 

challenge to the merger was resolved by a 

consent decree requiring divestiture of Alcan’s 

brazing sheet business, including a smelting 

facility, rolling mill, and associated intellectual 

property. 

45
Healthtrust–Holy Cross (FTC 1994) In a 

merger between Healthtrust, Inc. - The 

Hospital Co. and Holy Cross Health Services of 

Utah, there was no CON regulation that would 

preclude or delay entry into the market, and 

prior entry of hospitals had occurred in the 

geographic market. Nonetheless, the 

Commission concluded that timely entry was 

unlikely to prevent anticompetitive effects 

from the merger under investigation because it 

takes many years to plan and build a new 

hospital. The Commission resolved its 

competitive concerns arising from the 

transaction by reaching a consent agreement 

with the parties that, among other things, 

included an order requiring divestiture of one 

of the acquired firm’s hospitals. 

In evaluating the timeliness of entry, the 

Agencies include the time to complete any 

necessary preliminary steps, such as establishing 

a reputation or the development of specialized 

inputs into the production of the product in 

question. 

Federal-Mogul–T&N (FTC 1998) FederalMogul Corp. and T&N PLC, which proposed 

to merge, competed in selling thin-wall engine 

bearings, light-duty engine bearings, and 

heavy-duty engine bearings to original 

equipment manufacturers (“OEMs”) and to 

customers in the aftermarket. These bearings 

required specialized alloys developed for 

specific applications. Entry required time to 

develop such alloys, to design the specific 

bearings for particular applications, and to test 

and qualify in particular applications. For each 

type of bearing, as to both OEM and 

aftermarket customers, FTC staff found that 

timely entry would not pr event 

anticompetitive effects in the relevant markets. 

Further, in the aftermarket, effective entry 

required brand name recognition that took 

additional time to develop. The Commission 

resolved the matter with a consent order that 

required, among other things, divestiture of 

T&N’s engine bearing business. 

Sufficiency of Entry 

Section 3.0 of the Guidelines states that “[e]ntry 

that is sufficient to counteract the competitive 

effects of concern will cause prices to fall to their 

premerger levels or lower.” Thus, even if the 

evidence suggests that timely entry into the 

relevant market is likely, the entry analysis is not 

complete. The entry must also be of a character 

and magnitude that it would “deter or counteract 

the competitive effect of concern.” 

Chicago Bridge–Pitt-Des Moines (FTC 2005) 

The Commission ruled that the consummated 

acquisition by Chicago Bridge & Iron Co. of 

certain assets from Pitt-Des Moines, Inc., 

violated Section 7 of the Clayton Act and 

Section 5 of the FTC Act. The merging parties 

designed, engineered, and built storage tanks 

for liquified natural gas (“LNG”), liquified 

petroleum gas (“LPG”), and liquid 

atmospheric gases such as nitrogen, oxygen, 

and argon (“LIN/LOX”). They also designed, 

engineered, and built thermal vacuum 

chambers (“TVC”). TVCs and field-erected 

tanks for LNG, LPG, and LIN/LOX are 

custom-made to suit each purchaser’s needs, 

and customers place great emphasis upon a 

supplier’s reputation for quality and service. 

For each of the relevant products, customers 

generally seek competitive bids from several 

suppliers. 

The Commission found that some timely 

entry into each of these markets might occur, 

but that it was unlikely to be sufficient to 

prevent anticompetitive effects from the 

merger. Although new firms had appeared 

and fringe firms had the intent to compete, 

these firms were not found to be significant 

competitors capable of replacing the 

competition lost due to the merger. With 

respect to the LNG tank market, the 

Commission found that new entrants lacked 

the reputation and experience that most 

customers demand, and they lacked the 

requisite personnel skills. With respect to the 

LPG and the LIN/LOX tank markets, the 

Commission found that, although the merging 

parties identified a number of actual and 

potential entrants, entry of those firms would 

not prevent the anticompetitive effects of the 

merger because the firms would not have the 

attributes desired by most customers. The 

record evidence showed no attempted entry 

into the TVC tank market by any suppliers. 

The Commission ordered, among other things, 

divestiture of assets and other remedial action 

46
to restore the competition lost as a result of the 

transaction. 

The Agencies’ reasons for concluding that 

entry would not face significant obstacles also can 

be relevant to determining whether entry would 

be sufficient. 

Sherwin-Williams–Duron (FTC 2004) The 

Sherwin-Williams Co., the nation’s largest 

manufacturer of architectural paint, proposed 

to acquire Duron, Inc., a leading architectural 

paint manufacturer in the eastern United 

States. The firms were head-to-head 

competitors in several metropolitan areas 

where each had a relatively large number of 

store locations. A focus of the Commission’s 

investigation was on the potential effects of the 

merger on professional contractors, which in 

significant numbers patronize architectural 

paint stores rather than other retailers of paint 

(such as home improvement stores and other 

big-box retailers). Staff concluded that this 

class of customers made purchasing decisions 

largely based on local market conditions that 

determine price and service, rather than on 

national or regional contracts with paint 

suppliers. 

The investigation assessed whether entry 

would require a network of store locations to 

compete effectively for professional painters’ 

business. Data analysis revealed that even 

professional painters who use numerous 

company stores during a year spend the vast 

majority of their dollars at a limited number of 

favored stores. Thus, the evidence showed 

that professional painters did not rely on an 

extended store network and would not likely 

pay a premium to do business with firms that 

operate a network of stores in a region. In 

addition, even if a network of some size were 

required, the requirements to open additional 

stores did not pose an entry barrier. Few 

significant obstacles appeared to prevent firms 

with established brand names from opening 

paint stores to serve professional painters. No 

Commission action was taken. 

47
4. Efficiencies


Merging parties may reduce their costs by 

combining complementary assets, eliminating 

duplicate activities, or achieving scale economies. 

Mergers also may lead to enhanced product 

quality or to increased innovation that results in 

lower costs and prices or in more rapid 

introduction of new products that benefit 

consumers. 

As the Guidelines state, efficiencies “can 

enhance the merged firm’s ability and incentive to 

compete, which may result in lower prices, 

improved quality, enhanced service, or new 

products.” Guidelines § 4. Moreover, when a 

merged firm achieves such efficiencies, it may 

induce competitors to strive for greater efficiencies 

in order to compete more effectively. Consumers 

benefit from such increased competition. 

Efficiencies may directly prevent the consumer 

harm that otherwise would result from a merger. 

The Agencies thus do not challenge a proposed 

merger “if cognizable efficiencies . . . likely would 

be sufficient to reverse the merger’s potential to 

harm consumers in the relevant market, e.g., by 

preventing price increases in that market.” 

Guidelines § 4. In analyzing mergers, including 

the likely effects of cost reductions, the Agencies 

assume that firms maximize profits. Other things 

equal, a reduction in any cost that depends on a 

firm’s output rate causes a profit-maximizing firm 

to reduce prices. This effect may be sufficient to 

counteract a merger’s anticompetitive effects. 

For example, one potential concern is that a 

proposed merger would increase the likelihood 

that competitors will coordinate pricing and 

output decisions in a way that harms consumers. 

In the presence of other conditions conducive to 

coordination, uniform cost structures across 

incumbent competitors may facilitate 

coordination. Therefore, some mergers that 

appreciably reduce the uniformity of costs across 

competitors may disrupt existing coordination or 

otherwise make coordination less likely. As a 

lower-cost producer, the merged firm may find it 

profitable to reduce prices notwithstanding its 

rivals’ likely reactions. Similarly, sufficiently large 

reductions in the marginal costs of producing and 

selling the products of one or both of the merging 

firms may eliminate the unilateral incentive to 

raise prices that the merger might otherwise have 

created. In both of these situations, the Agencies 

integrate efficiencies into their assessments of 

competitive effects. In so doing, the Agencies 

assess the effects of the elimination of competition 

between the merging firms in light of any 

cognizable, merger-specific efficiencies. 

Efficiencies in the form of quality 

improvements also may be sufficient to offset 

anticompetitive price increases following a 

merger. Because a quality improvement involves 

a change in product attributes, a simple 

comparison of pre- and post-merger prices could 

be misleading. A careful analysis of the effects of 

changes in product attributes and prices on 

consumer welfare is likely to be necessary. 

Efficiencies the Agencies Consider 

Section 4 of the Guidelines provides that, to be 

considered by the Agencies, an efficiency must be 

“merger-specific” and “cognizable.” 

Merger-Specific Efficiencies 

Efficiencies are not taken into account by the 

Agencies if they are not merger-specific. Mergerspecific efficiencies are “those efficiencies likely to 

be accomplished with the proposed merger and 

unlikely to be accomplished in the absence of 

either the proposed merger or another means 

having comparable anticompetitive effects.” The 

Guidelines explain that, although the Agencies ask 

whether the efficiencies can be achieved by means 

other than the merger, “[o]nly alternatives that are 

49
practical in the business situation faced by the 

merging firms will be considered in making this 

determination; the Agency will not insist upon a 

less restrictive alternative that is merely 

theoretical.” 

The Agencies recognize that the merging 

parties often have information with respect both to 

how they plan to integrate after the merger and to 

the effect of the integration on the merged firm. 

Accordingly, the Agencies give full consideration 

to the parties’ reasonable and well-supported 

explanations of merger-specific cost savings. 

Any efficiency that enables the combined firm 

to achieve lower costs for a given quantity and 

quality of product than the firms likely would 

achieve without the proposed merger is mergerspecific. For example, if a merged firm would 

combine the production from two small or 

underutilized facilities (one from each of the 

merging firms) at one facility that has lower costs, 

and if such a cost reduction could not practically 

be achieved without the merger (e.g., by one ofthe 

merging firms combining two of its own 

underutilized facilities or through rapid internal 

growth), this cost reduction is merger-specific. 

Such a cost reduction benefits consumers to the 

extent that it makes the merged firm a more 

vigorous competitor, reduces prices, or expands 

output. 

That an efficiency theoretically could be 

achieved without a merger—for example, through 

a joint venture or contract—does not disqualify it 

from consideration in the analysis. Many joint 

venture agreements or contracts may not be 

practically feasible or may impose substantial 

transaction costs (including monitoring costs). In 

their assessment ofproffered efficiency claims, the 

Agencies accord appropriate weight to evidence 

that alternatives to the merger are likely to be 

impractical or relatively costly. 

Alpha–Beta (Disguised FTC Matter) A 

proposed merger of two of the largest gizmo 

manufacturers (“Alpha” and “Beta”) would 

create a firm with a market share in excess of 

30%. In addition to its manufacturing 

business, Alpha owned a subsidiary company 

engaged in industrial packaging. At the time 

of the proposed merger, Alpha’s packaging 

subsidiary had unutilized capacity. Among 

the subsidiary’s customers was Beta, which 

owned Get-To, Inc., a company that dispenses 

gizmos to customers located in isolated areas 

not otherwise served by normal distribution 

channels. The parties planned to combine 

Alpha’s unused packaging capacity with GetTo’s demand for packaging. The parties 

claimed that this combination would yield 

significant cost savings. Commission staff 

concluded that, although such an arrangement 

may yield savings, the savings would not be 

merger-specific. Beta already was an Alpha 

customer, and the evidence suggested that, 

even in the absence of the merger, Alpha and 

Beta were in the position readily to expand 

their existing packaging services contract to 

achieve the claimed savings. The Commission 

did not challenge the merger because evidence 

was insufficient to show that the merger was 

likely to cause competitive harm. 

Nucor–Birmingham Steel (DOJ 2002) Nucor 

Corp.’s acquisition of substantially all of the 

assets of Birmingham Steel Corp. raised 

competitive concerns because the firms owned 

two of the three mills producing certain types 

of steel bar in the western United States. The 

Department concluded, however, that the third 

western mill and other domestic mills would 

substantially constrain any post-merger price 

increases and that the merger likely would 

generate significant efficiencies. The 

Department found that the acquisition would 

allow the merged firm to close some 

distribution facilities and to supply some 

customers from a closer mill at a lower 

delivered cost. The Department also found 

that the acquisition would provide a Nucor 

mill with a lower cost input supply from 

Birmingham, although some of the savings 

might have been obtainable through a 

contractual arrangement. Even though some 

of the latter efficiencies may not have been 

merger specific, the Department concluded 

that plausible merger-specific reductions in 

variable costs were significant relative to the 

worst case scenario of anticompetitive effects 

from the acquisition, and the Department 

granted early termination under HSR. 

Competition spurs firms to implement cost 

reduction initiatives, and those likely to be 

implemented without a proposed merger do not 

yield merger-specific efficiencies. For example, 

the parties may believe that they can reduce costs 

50
by adopting each other’s “best practices” or by 

modernizing outdated equipment. But, in many 

cases, these efficiencies can be achieved without 

the proposed merger. The presence of other firms 

in the industry unilaterally adopting similar “best 

practices” would suggest that such cost savings 

are not merger-specific. By contrast, if a “best 

practice” is protected by intellectual property 

rights, then it could be the basis for a mergerspecific efficiency claim. 

Merging parties also may claim cost savings 

from combining sales and realizing economies of 

scale. These types of economies, however, might 

be realized from internal growth. If such 

unilateral changes are likely without the proposed 

merger (for example, if they have already been 

planned), they are not merger-specific. Timing 

can be an important factor in the consideration of 

such claims. If a merger can be expected 

significantly to accelerate the achievement of 

economies of scale due to increased sales as 

compared to internal growth, the Agencies credit 

the merger with merger-specific acceleration of the 

cost reduction. 

Cognizable Efficiencies 

The Guidelines define cognizable efficiencies to 

be “merger-specific efficiencies that have been 

verified and do not arise from anticompetitive 

reductions in output or service.” Moreover, 

“[c]ognizable efficiencies are assessed net of costs 

produced by the merger or incurred in achieving 

those efficiencies.” Guidelines § 4. 

The parties can facilitate the Agencies’ 

assessment of whether efficiency claims are 

cognizable by providing documentation that is 

logical, coherent, and grounded on facts and 

business experience. It is in the parties’ interest to 

provide detailed information on the likelihood, 

magnitude, and timing of claimed efficiencies. 

They may, for example, draw on a detailed 

business plan that describes how the merged firm 

intends to achieve the efficiencies. If not already 

included in the business plan, the parties should 

also consider providing supporting evidence that 

justifies the planning methods and shows the 

reasonableness of applied assumptions. 

When efficiencies are an important business 

motive for the merger, information pertinent to 

verification will often exist prior to the Agencies’ 

antitrust review of the merger. In other 

situations—particularly when projected 

efficiencies are not a principal motive for the 

merger and evidence to substantiate claims has 

not been prepared prior to the merger 

agreement—the parties can elect to develop and 

submit to the reviewing Agency evidence (e.g., 

documents, data, consultant reports, or evidence 

from past experiences) to substantiate the claimed 

efficiencies. 

Arch Coal–Triton (FTC 2004) Pursuant to a 

Commission action in federal district court to 

enjoin the proposed merger of Arch Coal, Inc. 

and Triton Coal Co. LLC, the parties claimed 

merger-specific efficiencies totaling $130 

million to $140 million over a five-year period. 

The parties’ efficiency claims included costsavings from equipment and operator 

reductions, the ability to extract additional coal 

through redeployment of coal mining 

equipment, insurance premium reductions, 

and safety improvements. Commission staff 

found that Arch Coal failed to substantiate 

many of its claimed savings and, in some 

instances, employed a methodology that 

overstated savings. Therefore, the staff 

determined that a substantial portion of Arch’s 

claimed savings were not cognizable. For 

example, staff found that claims related to the 

ability to extract additional coal through 

redeployment of coal mining equipment were 

overstated because staff believed Triton would 

recover the additional coal absent the merger, 

just not as quickly as Arch would be able to in 

the combined operation. The court denied the 

Commission’s preliminary injunction request 

and, after further investigation, the 

Commission decided not to pursue further 

administrative litigation. 

Oracle–PeopleSoft (DOJ 2004) Oracle Corp. 

made an unsolicited tender offer for 

PeopleSoft, Inc. Oracle and PeopleSoft 

competed in the sale of Enterprise Resource 

Planning software, which provides tools for 

automating essential operating functions 

within large organizations. Oracle Corp. 

claimed that the proposed takeover would 

produce cost reductions of more than $1 billion 

per year. Although these claims were based on 

projections made by a high ranking executive, 

the Department’s attempts to verify these 

claims revealed that they were predicated on 

51
little more than unsupported speculation with 

no allowance having been made forthe costs of 

integrating the two companies. Moreover, the 

Department concluded that at least a 

significant portion of the projected cost savings 

were a consequence of projected reductions in 

sales that would be the result of eliminating the 

R&D and sales staffs of PeopleSoft. The 

Department found that, for the most part, the 

cost reductions would stem from 

anticompetitive reductions in innovation, 

service, and output, and therefore did not 

reflect cognizable efficiencies. The Department 

filed suit to block the transaction, but the 

district court declined, on other grounds, to 

enjoin it. 

Verification of Efficiency Claims 

After the parties have presented substantiation 

for their claimed merger-specific efficiencies, the 

Agencies attempt to verify those claims. The 

verification process usually includes, among other 

things, an assessment of the parties’ analytical 

methods, including the accuracy of their data 

collection and measurement, an evaluation of the 

reasonableness of assumptions in the analysis, and 

scrutiny into how well the parties’ conclusions 

stand up to modifications in any assumptions (i.e., 

the “robustness” of the parties’ analysis). To 

evaluate the parties’ efficiency claims, the 

Agencies typically review the parties’ internal 

documents and data, as well as the statements of 

knowledgeable company personnel. In some 

cases, to evaluate further how realistic the claimed 

efficiencies are, the Agencies also contact third 

parties, for example, to learn what efficiencies 

others have been able to achieve and how they 

have achieved those efficiencies. 

The Agencies recognize that assessing a 

proposed merger’s potential efficiency benefits, 

like its competitive effects, necessarily involves 

projections about the future. The Agencies do not 

automatically reject a claim due to minor 

discrepancies uncovered in the verification 

process. Nor do the Agencies reject an efficiency 

claim solely because the efficiency has never 

before been accomplished. Shortcomings in the 

substantiation of a particular efficiency claim may 

cause the Agencies to reduce the magnitude of the 

efficiencies associated with that claim rather than 

to reject the claim altogether. Similarly, the fact 

that one stand-alone efficiency claim cannot be 

verified does not necessarily result in rejection of 

other claims. 

The stronger the supporting evidence, the more 

credence the Agencies are likely to give the 

claimed efficiencies in the competitive effects 

analysis. Efficiency claims that are vague, 

speculative, or unquantifiable and, therefore, 

cannot be verified by reasonable means, are not 

credited. For example, a general claim that the 

acquiring firm will save 20% of the acquired firm’s 

expenses, without substantiation, generally would 

not be credited. 

Fine Look–Snazzy (Disguised FTC Matter) In 

a proposed merger of two consumer products 

packagers, Fine Look and Snazzy, the parties 

claimed efficiencies from rationalization and 

consolidation of packaging facilities (“PFs”); 

elimination of duplicate corporate overhead; 

and combining specialty packaging operations. 

Commission staff determined that a portion, 

but not all, of the savings claimed through 

consolidation of PFs was merger-specific and 

cognizable, but rejected the other claims 

because they could not be reasonably verified 

and thus were not cognizable. The 

Commission did not challenge the merger 

because evidence was insufficient to show that 

the merger was likely to cause competitive 

harm. The Commission credited the portion of 

the parties’ efficiency claims that staff found to 

be merger-specific and cognizable. 

First, the staff considered the consolidation 

of PFs. Fine Look operated 30 PFs and Snazzy 

operated 20. The parties planned to operate 35 

PFs after the merger by closing 15 owned by 

Fine Look and 10 owned by Snazzy, and by 

building 10 new PFs. The parties claimed that 

sales from the closed Fine Look PFs would be 

shifted to Snazzy PFs and that this shift would 

result in reduced operating and delivery costs 

at the Snazzy PFs. Similarly, savings would 

derive from reduced operating costs at Fine 

Look PFs because of transferred sales from 

closed Snazzy PFs. The parties also claimed 

reduced inventory costs tied to reducing the 

number of PFs. 

In estimating the potential savings from 

closing PFs, the parties assumed that all PF 

costs would be eliminated except for certain 

variable costs that would be shifted to the 

52
remaining PFs. In the case of the 15 Fine Look 

PFs projected to be closed, the parties provided 

reasonable substantiation of these cost savings 

derived from Fine Look cost records. 

Nonetheless, the parties’ estimates assumed 

that, in each case of a closing, the remaining 

post-merger PFs would retain 100% of the 

customers of the closed PFs. The parties 

provided no analysis respecting how sensitive 

their estimates were to this key assumption. 

In addition, at least some of the 

consolidations for which the parties claimed 

efficiencies were purely intra-Snazzy (i.e., 

closing one Snazzy PF in proximity to another 

Snazzy PF). Staff concluded that such 

consolidations would not be merger-specific. 

Furthermore, the claimed savings from 

closings of the Snazzy PFs were not 

substantiated from cost records, but instead 

were conjecture. Staff could not accept these 

claims. 

Based on all of the claims respecting PF 

consolidation, staff concluded that only 

savings associated with the 15 Fine Look 

closings for which substantiation was provided 

were cognizable. But because no sensitivity 

analysis was performed regarding the 

assumption on the retention of customers, staff 

considered the estimated savings from the 

closing of the Fine Look PFs to be only an 

upper bound on the potential savings. 

Second, the staff considered the corporate 

savings. The parties made a very rough 

calculation of projected savings through 

consolidation of various corporate functions. 

They contended that 75% of one party’s 

corporate expenses would be eliminated by 

this consolidation. The calculation, however, 

was unsubstantiated conjecture rather than an 

analysis based on objective data that Agency 

staff could evaluate. Staff thus found the claim 

not to be cognizable. 

Third, the staff considered the specialty 

packaging operations. Both Fine Look and 

Snazzy operated specialty packaging facilities 

for high-end luxury widgets, independent of 

their other PFs. The parties planned to 

consolidate Fine Look’s specialty business into 

Snazzy’s specialty business. They claimed that 

this consolidation would reduce costs because 

it would yield savings of 50% in operating 

expenses. In deposition, a senior executive 

admitted that the 50% figure was merely an 

unsupported assumption. Staff concluded that 

the parties’ failure to provide sufficient 

evidence in support of the claim made the 

efficiency claim unverifiable and therefore not 

cognizable. 

The Agencies may accord less significance to 

shortcomings in the documentation of claimed 

efficiencies when the weight of evidence suggests 

that merger-specific efficiencies appear to be 

significant and likely to be achieved. 

Genzyme–Novazyme (FTC 2004) Genzyme 

Corp. acquired Novazyme Pharmaceuticals, 

Inc., combining the world’s only firms engaged 

in developing the first enzyme replacement 

therapy (“ERT”) to treat Pompe disease, a rare, 

fatal disease that affects about 10,000 people 

worldwide. Whether either firm’s Pompe drug 

would make it to market was not certain, but 

the acquisition left Genzyme as the only firm 

engaged in developingPompe ERT treatments. 

Genzyme asserted that, even without 

competition from Novazyme, it had the 

incentive to bring its Pompe product to market 

in the fastest possible time frame. 

Genzyme also asserted that the acquisition 

had resulted in significant efficiencies. 

Genzyme claimed that each firm had unique 

skills and expertise, and that, by combining, 

the merged firm could accelerate development 

of Genzyme’s and Novazyme’s Pompe drugs. 

Genzyme asserted that it possessed certain 

unique capabilities and technologies that it was 

applying to Novazyme’s Pompe drug. The 

Commission voted to close the investigation 

without challenging the transaction due, in 

part, to the evidence supporting the claim that 

the merger would accelerate development of 

the drug. 

The best way to substantiate an efficiency claim 

is to demonstrate that similar efficiencies were 

achieved in the recent past from similar actions. 

Documentation must be based on appropriate 

methods and realistic assumptions, and ideally 

would be grounded on actual experience. For 

example, a firm that recently combined its own 

distribution centers, or consolidated distribution 

centers after a recent merger, could use its actual 

cost savings experiences in those instances as a 

53
basis for, and to substantiate claims made about, 

efficiency claims arising from combining 

distribution centers after a proposed merger. 

If the parties cannot point to similar efficiencies 

achieved in the recent past, they should use the 

best information available to substantiate their 

efficiency claims. For example, the parties might 

do an internal study and analysis of expected 

efficiencies using recent cost records and other 

pertinent objective data. In addition, some parties 

have found outside consultants helpful in 

substantiating efficiency claims. 

The Agencies may verify and accept part of an 

efficiency claim. For example, an acquiring firm 

might estimate a particular efficiency by assuming 

that all of the acquired firm’s customers and sales 

will transfer to the merged entity when experience 

suggests that customers and sales are not likely to 

transfer completely. Or, a party may estimate the 

dollar value of a particular efficiency using a 

discount rate that is significantly different from 

the discount rate it normally uses, without any 

justification for the difference. In such cases, the 

differences between the parties’ efficiencies 

estimates and ones using the more supported 

assumptions are not verifiable, and those portions 

of the efficiency claims are unlikely to be credited. 

A-1 Goods–Bingo (Disguised FTC Matter) In 

a proposed merger of consumer products 

companies, A-1 Goods, Inc. and Bingo Co., the 

parties claimed cost savings of several million 

dollars from a reduction in the sales force and 

a combining of certain manufacturing facilities. 

Commission staff concluded that the parties’ 

estimates were exaggerated. Staff credited 

some, but not the entire dollar amount of the 

claims. 

First, the staff considered the sales force 

reduction. The parties claimed that the merger 

would permit the post-merger firm to 

eliminate the equivalent of 90% of one of the 

party’s pre-merger sales force, representing 

approximately 40% of the combined premerger sales employees. For calculating the 

estimated efficiencies, the parties assumed that 

the combined post-merger output would be the 

same as that before the merger. They also 

assumed that pre-merger levels of marketing 

and selling support to customers would be 

maintained. Achieving these efficiencies 

would require one-time costs approximating 

almost 80% of the projected annual cost 

savings. 

These one-time costs derived from 

severance payments and relocation expenses. 

Evidence from the parties suggested that the 

claims were based on aggressive assumptions. 

For this reason, Commission staff discounted 

the parties’ estimates. Applying more 

reasonable assumptions, the staff credited most 

of the parties’ claimed cost savings, from 

which the one-time cost of achieving the 

efficiencies was subtracted. 

Second, the staff considered the 

consolidation of manufacturing facilities. The 

parties claimed several million dollars in 

projected savings from the expected 

consolidation of certain manufacturing 

facilities. The parties planned to shut down an 

A-1 production facility and consolidate its 

output into a Bingo plant. The post-merger 

output rate was to be the same as on a 

combined, pre-merger basis, but with fewer 

people needed to run the consolidated 

manufacturing operations. To maintain the 

same rate of pre-merger output, the parties 

envisioned that 70% of A-1’s manufacturing 

equipment in the shut-down facility would be 

moved to unused space at the Bingo facility, 

adding to the overall manufacturing capacity 

of that facility. In addition, a number of A-1 

employees would be relocated to the Bingo 

plant, while other employees would be let go. 

Certain retooling and capital expenditures 

related to integrating manufacturing 

operations would have to be incurred. 

The parties claimed that no arrangement 

other than the proposed merger would 

generate the efficiencies claimed. They 

contended that any non-merger arrangement 

would raise insurmountable issues of control, 

allocation of savings between owners, transfer 

pricing problems, and issues dealing with the 

sharing of proprietary knowledge. To buttress 

this point, the parties presented Commission 

staff with evidence that the parties considered 

entering into contract manufacturing 

arrangements, joint ventures, and other 

internal measures to save money on 

production, but concluded that these were 

impractical or could not bring about the 

desired level of efficiencies. Based in part on 

this evidence, Commission staff concluded that 

54
the claimed efficiencies were merger-specific 

and cognizable. 

The Commission ultimately decided not to 

challenge the merger on the grounds that it 

posed no substantial threat to competition, 

irrespective of any efficiency claims. 

When parties to a merger base an efficiency 

claim on past experience, the Agencies examine 

whether the experience is indicative of what is 

likely to occur with the merger. If the experience 

was far out of the ordinary (e.g., during 

bankruptcy, a worker’s strike, drought, or war), 

the Agencies may not credit the claims. 

Sufficiency of Efficiencies 

As noted in section 4 of the Guidelines, the 

Agencies seek to determine “whether cognizable 

efficiencies likely would be sufficient to reverse 

the merger’s potential to harm consumers in the 

relevant market, e.g., by preventing price 

increases in that market.” Within the integrated 

analysis framework for evaluating competitive 

effects, “efficiencies are most likely to make a 

difference in merger analysis when the likely 

adverse competitive effects, absent the efficiencies, 

are not great.” Efficiencies are a significant factor 

in the Agencies’ decisions not to challenge some 

mergers that otherwise are likely to have, at most, 

only slight anticompetitive effects. 

Toppan–DuPont (DOJ 2005) Photomasks are 

the masters from which integrated circuits are 

produced. Toppan Printing Co., Ltd. was a 

Japanese company that had recently begun 

competing in the United States. Toppan was 

proposing to acquire DuPont Photomasks, Inc., 

which was one of its three competitors for U.S. 

sales of the highest technology photomasks. 

The Department found that competition was 

best modeled as an auction process, with each 

auction essentially a separate relevant market. 

The Department’s economists used a formal 

auction model to estimate the likely price 

effects of the transaction. This exercise 

indicated that, even without any efficiencies, 

the acquisition most likely would lead to, at 

most, only small price increases. Incorporating 

the portion of the claimed efficiencies the 

Department determined to be merger-specific 

and cognizable indicated that the transaction 

would not lessen the welfare of U.S. customers 

under the assumptions considered most 

plausible. Accordingly, the Department did 

not challenge the merger. 

PayPal–eBay (DOJ 2002) PayPal, Inc. and 

eBay, Inc. provided competing person-toperson payment systems used largely to 

complete transactions following eBay auctions. 

Even though the person-to-person payment 

systems offered advantages over the other 

means of payment, the Department decided 

not to challenge eBay’s acquisition of Pay Pal 

principally because other means of payment 

substantially constrained eBay’s ability to 

increase fees after the acquisition. Efficiencies 

to be gained by integrating PayPal with eBay 

were also a factor in the Department’s analysis. 

Integrating the two would make transactions 

more convenient for eBay buyers and also 

improve the detection of fraud by combining 

the information that had been separately 

amassed by the two companies. 

DirecTV–Dish Network (DOJ 2002) DirecTV 

Enterprises Inc. was owned by Hughes 

Electronics Corp., which was owned by 

General Motors Corp. DirecTV operated one 

of two direct broadcast satellite (“DBS”) 

services in the United States. EchoStar 

Communications Corp., which operated the 

other DBS service, Dish Network, proposed to 

acquire Hughes. Economists working for the 

parties and economists in the Department both 

engaged in extensive modeling of the 

competition between the two DBS services and 

with cable television operators with which the 

DBS services competed in providing 

“multichannel video programming 

distribution.” 

The Department concluded that this 

modeling supported the conclusion that the 

acquisition would substantially harm 

consumers and filed suit to prevent its 

consummation. Shortly thereafter, the 

acquisition was abandoned. The Department’s 

modeling indicated that efficiencies claimed by 

the parties would be insufficient to prevent the 

merger from creating significant 

anticompetitive effects. 

One source of claimed efficiencies was the 

r educ tion of programming cos t s . 

Incorporating the Department’s best estimate 

of those reductions into the modeling only 

55
slightly reduced the likely price increase from 

the proposed acquisition. A second source of 

claimed efficiencies was a quality 

improvement; by combining the two services, 

it would be possible to offer local 

programming in many additional metropolitan 

areas with the available satellite bandwidth. 

The Department’s analysis indicated that the 

consumer benefits from this quality 

improvement were far from sufficient to 

prevent the merger from harming consumers 

and also would be realized without the 

merger. 

Enerco–KleenBurn (Disguised FTC Matter) 

Enerco and KleenBurn Refinery, Inc. were 

gasoline refining and distribution firms that 

proposed to merge. The transaction involved 

the markets for bulk supply of conventional 

gasoline in the “Plains Corridor” and for bulk 

supply of reformulated gasoline (“RFG”) in 

Metropolis. The parties claimed that the 

transaction would create substantial 

efficiencies in refinery and pipeline operations. 

Enerco asserted that the KleenBurn refinery 

could, with relative ease, be integrated into 

Enerco’s nearby refinery, which, in turn, would 

enable Enerco to generate substantial 

operational efficiencies by enhancing its ability 

to (1) coordinate the acquisition of crude oil 

and lower raw material costs; (2) align more 

efficiently the production processes of various 

light petroleum products, including 

conventional gasoline and RFG; (3) increase 

available storage to permit Enerco to 

manufacture and sell more gasoline grades; 

and (4) better plan and consolidate shipments. 

Commission staff concluded that at least some 

portion of the parties’ efficiency claims were 

likely to be cognizable. 

Enerco documents showed that it based a 

large portion of its bid on the value of expected 

synergies. When the expected synergies were 

counted, the refinery’s value was estimated to 

increase four-fold over the KleenBurn 

refinery’s stand-alone value. This estimated 

increase was about the same amount that 

Enerco offered to pay. Enerco’s willingness to 

pay upfront for these synergies lent credence 

to its claims. 

Enerco contended that the savings from 

these efficiencies would enable it to continue 

operating the KleenBurn refinery beyond the 

date that the refinery otherwise would have 

been expected to be decommissioned. Enerco 

further claimed that its previous efforts tomeet 

new low-sulphur gasoline standards would 

enable KleenBurn to comply with those 

standards sooner and at lower cost. Thus, 

Enerco could, with less investment, maintain 

or exceed Kleenburn’s historical production 

levels. Enerco financial analyses confirmed 

that it planned to run the KleenBurn refinery at 

or above current output rates. 

Enerco asserted that it would connect the 

KleenBurn refinery to Enerco’s Metropolis-area 

refineries, and reallocate Kleenburn barrels for 

sale in neighboring states, while reserving 

Metropolis-area barrels for shipment west. 

The Plains Feeder Line Pipeline tariff was 

substantially higher from the KleenBurn 

facility than from Enerco’s refineries, and 

Enerco claimed that it would save over $1 

million in variable delivery costs. 

Enerco planned to ship several million 

barrels per day of combined refinery output 

into the Plains Corridor on Plains Feeder Line 

under this lower tariff. Because most bulk 

conventional gasoline shipped into the Plains 

Corridor was purchased FOB refinery gate in 

Metropolis, the tariff savings would, in most 

instances, inure directly to customers in the 

Plains Corridor. These customers had the 

existing shipping rights on Plains Corridor 

gasoline during the summer months when the 

pipeline is frequently prorated. 

The Commission ultimately decided not to 

challenge the merger on the grounds that it 

posed no substantial threat to competition, 

irrespective of any efficiency claims. 

“Out-of-Market” Efficiencies 

In some cases, merger efficiencies are “not 

strictly in the relevant market, but so inextricably 

linked with it that a partial divestiture or other 

remedy could not feasibly eliminate the 

anticompetitive effect in the relevant market 

without sacrificing the efficiencies in the other 

market(s).” Guidelines § 4 at n.36. If out-ofmarket efficiencies are not inextricably linked to 

the relevant market, the Agencies often find an 

acceptable narrowly tailored remedy that 

preserves the efficiencies while preventing 

56
anticompetitive effects. 

Genzyme–Ilex (FTC 2004) Genzyme Corp. 

proposed to acquire Ilex Oncology, Inc. Ilex 

had one FDA-approved product, Campath, an 

oncology product used off-label in the solid 

organ transplant field. Genzyme did not 

compete with Campath in oncology but had a 

drug that was Campath’s closest competitor in 

the market for solid organ transplant acute 

therapy drugs. The acquisition would have 

eliminated direct competition between 

Ge nz y me’s ma rket-leading drug, 

Thymoglobulin, and Campath. 

The companies asserted that the transaction 

would yield significant efficiencies for 

oncology treatment and development. The 

primary efficiency encompassed several 

diagnostic tests that could aid the expansion of 

Campath for treatments in leukemia and other 

oncology and immune-related diseases by 

identifying patients who are most likely to 

benefit from Campath treatment. 

After investigation and analysis of this 

efficiency, Commission staff concurred that 

Genzyme likely would improve Campath’s 

quality and breadth of treatment in oncology. 

The companies did not demonstrate, however, 

that credible efficiencies would result in the 

solid transplant organ area. In light of the 

efficiencies in oncology and immune-related 

disease areas, the Commission tailored a 

remedy to alleviate the competitive concern in 

the market for solid organ transplant drugs 

while allowing the merged company to realize 

the potential efficiencies in oncology and other 

areas. In a consent order, the Commission 

required Genzyme, among other things, to 

divest contractual rights to Campath for use in 

solid organ transplant. 

Inextricably linked out-of-market efficiencies, 

however, can cause the Agencies, in their 

discretion, not to challenge mergers that would be 

challenged absent the efficiencies. This 

circumstance may arise, for example, if a merger 

presents large procompetitive benefits in a large 

market and a small anticompetitive problem in 

another, smaller market. 

Gai’s–United States Bakery (DOJ 1996) 

United States Bakery and Gai’s Seattle French 

Bakery Co. proposed a joint venture, which the 

Department viewed as a merger. The two 

companies sold bread products in competition 

with one another in the Pacific Northwest, and 

the Department was concerned about the 

competitive effects of the transaction on 

restaurants and institutional accounts, 

particularly fast food restaurants, because the 

two companies accounted for more than 90% 

of the bread sales to such customers. 

Supplying such customers required a higher 

level of service (e.g., much more frequent 

deliveries) than supplying retail stores, and 

few bakeries provided that level of service. 

Without entirely resolving issues relating to 

competitive effects and entry, the Department 

decided not to challenge the transaction, 

concluding that the efficiencies likely would 

cause the merger to benefit the merged firm’s 

customers as a whole. 

Critical to the Department’s assessment was 

the fact that the merger-specific efficiencies 

would benefit all customers, and the restaurant 

and institutional customers potentially of 

concern accounted for only about 20% of the 

companies’ sales. The two groups of 

customers were buying essentially the same 

products, produced with the same facilities. 

Because it was otherwise impossible to 

preserve the efficiency benefits to all 

customers, the Department did not challenge 

the merger. 

Fixed-Cost Savings 

Merger-specific, cognizable efficiencies are 

most likely to make a difference in the Agencies’ 

enforcement decisions when the efficiencies can be 

expected to result in direct, short-term, 

procompetitive price effects. Economic analysis 

teaches that price reductions are expected when 

efficiencies reduce the merged firm’s marginal 

costs, i.e., costs associated with producing one 

additional unit of each of its products. By 

contrast, reductions in fixed costs—costs that do 

not change in the short-run with changes in output 

rates—typically are not expected to lead to 

immediate price effects and hence to benefit 

consumers in the short term. Instead, the 

immediate benefits of lower fixed costs (e.g., most 

57
reductions in overhead, management, or 

administrative costs) usually accrue to firm 

profits. 

Exceptions to this general rule, however, exist. 

For example, under certain market or sales 

circumstances, fixed-cost savings may result in 

lower prices in the short term. Selling prices that 

are determined on a “cost-plus basis” (e.g., costbased contracts) can be influenced by changes in 

fixed costs. Contractual arrangements also may 

allow fixed-cost savings to be passed through. 

The Agencies consider merger-specific, 

cognizable reductions in fixed costs, even if they 

cannot be expected to result in direct, short-term, 

procompetitive price effects because consumers 

may benefit from them over the longer term even 

if not immediately. As with any other type of 

efficiency, reductions in fixed costs must be 

substantiated by the parties and verified by 

reasonable means. 

Verizon–MCI; SBC–AT&T (DOJ 2005) In 2005 

Verizon Communications, Inc. and SBC 

Communications, Inc., the nation’s two largest 

regional Bell operating companies, sought to 

acquire MCI Inc. and AT&T Corp., the nation’s 

two largest inter-exchange (long distance) and 

competitive local exchange (local service) 

carriers. To a significant extent, the pairs of 

firms proposing to merge were engaged in 

complementary activities. Verizon and SBC 

dominated local exchange and access service in 

their respective territories but had limited 

long-haul networks and only moderate success 

with large enterprise customers. MCI and 

AT&T had extensive long-haul networks and 

were the leading p r o v i ders of 

telecommunications services to large 

businesses. The Department concluded that 

the proposed mergers would substantially 

lessen competition only in the facilities-based 

local private line services to many buildings for 

which the merging pairs of firms owned the 

only lines. 

The Department investigated the effects of 

the transactions on competition in residential 

local and long distance telephone service, 

internet backbone services, and a variety of 

other telecommunications services. A 

significant factor in the Department’s decision 

not to challenge the proposed mergers was that 

the transactions were likely to produce 

substantial efficiencies. The merging interexchange carriers, AT&T and MCI, sell 

advanced retail products to enterprise 

customers and generally have relied on local 

exchange carriers, such as their merger 

partners, for customer access. The merging 

local exchange carriers, SBC and Verizon, 

similarly have relied on inter-exchange carriers 

in selling advanced retail products to multiregion and out-of-region enterprises. The 

merger allowed each of the firms to provide 

these products at a lower cost to the customers 

by making inputs and complementary 

products available at a lower cost. 

IMC Global–Western Ag (DOJ 1997) IMC 

Global Inc. proposed to acquire Western AgMinerals Co. The two companies operated the 

only potash mines and processing facilities in 

the Carlsbad region of New Mexico, which 

contains the only known reserves of 

langbeinite in the Western Hemisphere. 

Langbeinite is a mineral used to produce an 

agricultural fertilizer supplying magnesium, 

potassium, and sulfur, which are important in 

the production of certain crops and in 

correcting deficiencies in certain soils. 

Critically, langbeinite supplies these important 

elements without also containing significant 

amounts of chlorine. 

It is possible to produce a fertilizer with the 

same qualities from other minerals, but the 

Department’s preliminary analysis indicated 

that a single owner of both langbeinite mines 

would find it optimal to raise prices 

significantly in the absence of any efficiencies 

from combining the mines. The Department, 

nevertheless, decided not to challenge the 

merger because of substantial merger-specific 

efficiencies. The parties provided the 

Department with studies indicating that 

combining the two mining and processing 

operations would result in substantial 

efficiencies that could be achieved in no other 

way. 

To verify these claims, the Department 

hired a consulting mining engineer to conduct 

an independent study of both the benefits of 

combining the two operations and alternative 

means of achieving particular efficiencies. The 

independent study concluded that the parties’ 

efficiency claims were conservative. Among 

58
other things, the study concluded that IMC 

would avoid substantial costs by transporting 

the Western-Ag ore through its mine to its 

processing plant at the mine mouth. WesternAg had been shipping the ore to its off-site 

processing plant. The study found additional 

efficiencies in combining the mining and 

processing of the other important mineral, 

sylvite, found on the adjoining IMC and 

Western-Ag properties. 

The evidence ultimately indicated that the 

annual dollar savings from the merger would 

be as much as ten times the likely annual 

increase in customer costs from the merger, 

absent any efficiencies. Because the magnitude 

of the merger-specific cost savings dwarfed 

any potential effects exclusive of factoring in 

these savings, the Department did not 

separately evaluate the extent to which the 

efficiencies were likely to affect fixed costs 

versus variable costs. 

Supporting Documentation 

As with the Guidelines, the Commentary 

addresses how the Agencies assess the likely 

competitive effects of horizontal mergers but not 

the assignment of burdens of proof or burdens of 

coming forward with evidence. In litigation, the 

parties have the burden on any efficiencies claim 

(Guidelines § 0.1 n.5), and it is to their advantage 

to present efficiency claims (including supporting 

documents and data) to the reviewing Agency as 

early as possible. The Agencies, for their part, 

make a serious effort to assess each efficiency 

claim made. Early receipt of documentation 

relating to the nature and size of efficiencies 

allows the Agencies to factor fully the cognizable 

efficiencies into an integrated analysis of the likely 

overall competitive effects of the merger. In 

particular, the parties may want to highlight 

significant documents that support their claims 

and to make their experts (for example, 

accountants, engineers, or economists) available as 

early as feasible to discuss specifics regarding 

efficiencies. Doing so helps underscore the 

seriousness of efficiency claims and assists the 

Agencies in according the appropriate weight to 

efficiency considerations in assessing the mergers 

before them. 

The Agencies recognize that, in many cases, 

substantiation of efficiency claims requires the 

collection, compilation, and analysis of 

competitively significant data and information 

from both of the merging parties. The sharing 

between rivals of proprietary information having 

potential competitive significance necessarily 

raises concerns about violations of section 1 of the 

Sherman Act, 15 U.S.C. § 1, and section 5 of the 

Federal Trade Commission Act, 15 U.S.C. § 45. 

Furthermore, the Hart-Scott-Rodino Act, 15 U.S.C. 

§ 18a, prohibits changes in beneficial ownership 

prior to the end of the HSR waiting period. 

Although prudent firms are cognizant of socalled “gun jumping” concerns, they can adopt 

appropriate safeguards to enable them to collect 

the information necessary to substantiate their 

efficiency claims. Information exchanges 

reasonably related to due diligence and 

integration planning that are accompanied by 

safeguards that prevent any other pre-merger use 

of that information are unlikely to be unlawful. 

The Agencies are mindful of the parties’ need to 

provide sensitive efficiencies-related information 

and, in that vein, the Agencies note that the 

antitrust laws are flexible enough to allow the 

parties to adopt reasonable means to achieve that 

end lawfully. 

59
Referenced Agency Materials


Horizontal Merger Guidelines (jointly issued April 2, 

1992 and revised April 8, 1997), available at 

http://www.usdoj.gov/atr/public/guidelines/ 

hmg.pdf and http://www.ftc.gov/bc/docs/ 

horizmer.htm 

Horizontal Merger Investigation Data, Fiscal Years 

1996–2003 (issued by the Commission 

February 2, 2004 and revised August 31, 2004), 

available at http://www.ftc.gov/opa/2004/ 

08/fyi0450.htm 

Merger Challenges Data, Fiscal Years 1999–2003 

(jointly issued December 18, 2003), available at 

http://www.ftc.gov/os/2003/12/mdp.pdf and 

http://www.usdoj.gov/atr/public/201898.pdf 

Merger Enforcement Workshop proceedings, 

including transcripts, presentations, submitted 

papers, and public comments are all available 

at http://www.ftc.gov/bc/mergerenforce/ 

index.html and http://www.usdoj.gov/atr/ 

public/workshops/mewagenda2.htm 

Merger Review Process Initiative (issued by the 

Department October 12, 2001 and revised 

August 4, 2004), available at http://www. 

usdoj.gov/atr/public/9300.pdf 

Reforms to the Merger Review Process at the 

Commission (issued February 16, 2006), 

available at http://www.ftc.gov/os/2006/02/ 

mergerreviewprocess.pdf 

61
Case Index 

U.S. Department of Justice Cases 

Case 

United States v. Aetna Inc. and The Prudential Insurance Co. of America, (N.D. 

Tex., filed June 21, 1999), 64 Fed. Reg. 44,946 (Aug. 18, 1999), 1999-2 Trade 

Cas. (CCH) ¶ 72,730, materials available at http://www.usdoj.gov/atr/ 

cases/indx142.htm 

United States v. Alcan Inc., Alcan Aluminum Corp., Pechiney, S.A., and Pechiney 

Rolled Products, LLC, (D.D.C., filed Sept. 29, 2003), 69 Fed. Reg. 33,406 (June 

15, 2004), 2005-1 Trade Cas. (CCH) ¶ 74,720, materials available at http:// 

www.usdoj.gov/atr/cases/alcan0.htm 

Arch Wireless, Inc. and Metrocall Holdings, Inc., press release available at 

http://www.usdoj.gov/atr/public/press_releases/2004/206339.htm 

United States v. Cargill Inc., Akzo Nobel, N.V., Akzo Nobel, Inc., and Akzo Nobel 

Salt, Inc., (D.D.C., filed Apr. 21, 1997), 62 Fed. Reg. 26,559 (July 22, 1997), 

1997-2 Trade Cas. (CCH) ¶ 71,893, materials available at http://www.usdoj. 

gov/atr/cases/indx108.htm 

United States v. Central Parking Corp. and Allright Holdings, Inc., (D.D.C., filed 

Mar. 16, 1999), 64 Fed. Reg. 15,795 (Apr. 1, 1999), 2000-1 Trade Cas. (CCH) 

¶ 72,809, materials available at http://www.usdoj.gov/atr/cases/indx121. 

htm 

United States v. Cingular Wireless Corp., SBC Communications Inc., Bell South 

Corp., and AT&T Wireless Services, Inc., (D.D.C., filed Oct. 25, 2004), 69 Fed. 

Reg. 65,633 (Nov. 15, 2004), 2005-1 Trade Cas. (CCH) ¶ 74,721, materials 

available at http://www.usdoj.gov/atr/cases/cingular.htm 

Cinram International Inc. and AOL Time Warner Inc. (2003) 

United States v. Dairy Farmers of America, (E.D. Pa., filed Mar. 31, 2000), 65 

Fed. Reg. 44,820 (July 19, 2000), 2001-1 Trade Cas. (CCH) ¶ 73,136, materials 

available at http://www.usdoj.gov/atr/cases/indx4450.htm 

United States v. EchoStar Communications Corp., Hughes Electronics Corp., 

General Motors Corp., and DirecTV Enterprises Inc., (D.D.C., filed Oct. 31, 

2002), materials available at http://www.usdoj.gov/atr/cases/echost0.htm 

Chapter(s) 

Competitive Effects 

(Unilateral Effects) 

Entry 

Competitive Effects 

(Unilateral Effects) 

Competitive Effects 

(Unilateral Effects) 

Entry 

Entry 

Entry 

Market Definition 

Efficiencies 

63
United States v. Enova Corp., (D.D.C., filed Mar. 9, 1998), 63 Fed. Reg. 33,396 

(June 18, 1998), 2000-2 Trade Cas. (CCH) ¶ 72,965, materials available at 

http://www.usdoj.gov/atr/cases/indx47.htm 

United States v. Florida Rock Industries, Inc., Harper Bros., Inc., Commercial 

Testing, Inc., and Daniel R. Harper, (M.D. Fla., filed May 26, 1999), 64 Fed. 

Reg. 32,258 (June 16, 1999), 2000-1 Trade Cas. (CCH) ¶ 72,858, materials 

available at http://www.usdoj.gov/atr/cases/indx141.htm 

Formica Corp. and International Paper Co., materials available at http://www. 

usdoj.gov/atr/public/press_releases/1999/2174.htm, http://www.usdoj. 

gov/atr/public/press_releases/1999/2177.htm 

United States v. Franklin Electric Co., United Dominion Industries, Ltd., and 

United Dominion Industries, Inc., 130 F. Supp. 2d 1025 (W.D. Wis. 2000), 

materials available at http://www.usdoj.gov/atr/cases/indx221.htm 

United States v. General Dynamics Corp. and Newport News Shipbuilding Inc., 

(D.D.C., filed Oct. 23, 2001), materials available at http://www.usdoj.gov/ 

atr/cases/indx337.htm 

United States v. Georgia-Pacific Corp. and Fort James Corp., (D.D.C., filed Nov. 

21, 2000), 66 Fed. Reg. 9,096 (Feb. 6, 2001), 2002-2 Trade Cas. (CCH) 

¶ 73,811, materials available at http://www.usdoj.gov/atr/cases/indx276. 

htm 

Gai’s Seattle French Bakery Co. and United States Bakery (1996) 

IMC Global Inc. and Western Ag-Minerals Co. (1997) 

United States v. Imetal, DBK Minerals, Inc., English China Clays, plc, and English 

China Clays, Inc., (D.D.C., filed Apr. 26, 1999), 64 Fed. Reg. 31,624 (June 11, 

1999), 2000-1 Trade Cas. (CCH) ¶ 72,922, materials available at http://www. 

usdoj.gov/atr/cases/indx140.htm 

United States v. Ingersoll-Dresser Pump Co. and Flowserve Corp., (D.D.C., filed 

Jan. 24, 2001), 65 Fed. Reg. 55,271 (Sept. 13, 2000), 2001-1 Trade Cas. (CCH) 

¶ 73,154, materials available at http://www.usdoj.gov/atr/cases/indx252. 

htm 

United States v. Interstate Bakeries Corp. and Continental Baking Co., (N.D. Ill., 

filed July 20, 1995), 60 Fed. Reg. 40,195 (Aug. 7, 1995), 1996-1 Trade Cas. 

(CCH) ¶ 71,271, materials available at http://www.usdoj.gov/atr/ 

cases/inters0.htm 

United States v. Kimberly-Clark Corp. and Scott Paper Co., (N.D. Tex., filed Dec. 

12, 1995), 60 Fed. Reg. 66,557 (Dec. 22, 1995), 1996-1 Trade Cas. (CCH) 

¶ 71,405, materials available at http://www.usdoj.gov/atr/cases/kimber0. 

htm 

United States v. L’Oreal S.A., L’Oreal USA, Inc., and Carson, Inc., (D.D.C., filed 

July 31, 2000), 65 Fed. Reg. 51,025 (Aug. 22, 2000), 2001-1 Trade Cas. (CCH) 

¶ 73,256, materials available at http://www.usdoj.gov/atr/cases/indx251. 

htm 

Maybelline, Inc. and Cosmair, Inc. (1996) 

Market Definition 

Entry 

Competitive Effects 

(Coordinated Interaction) 

Competitive Effects 

(Unilateral Effects), 

Entry 

Entry 

Competitive Effects 

(Unilateral Effects) 

Efficiencies 

Efficiencies 

Entry 

Market Definition, 

Competitive Effects 

(Unilateral Effects), Entry 

Market Definition, 

Competitive Effects 

(Unilateral Effects), Entry 

Competitive Effects 

(Unilateral Effects), 

Entry 

Entry 

Competitive Effects 

(Unilateral Effects) 

64
United States v. Mercy Health Services and Finley Tir-States Health Group, Inc., 

902 F. Supp. 968 (N.D. Iowa 1995), vacated, 107 F.3d 632 (8th Cir. 1997), 

materials available at http://www.usdoj.gov/atr/cases/mercyh0.htm 

United States v. NAT, L.C. and D.R. Partners d/b/a Donrey Media Group, 

reported sub nom., Community Publishers, Inc. v. Donrey Corp., 892 F. Supp. 

1149 (D. Ark. 1995), affirmed, Community Publishers, Inc. v. DR Partners, 139 

F.3d 1180 (8th Cir. 1998), materials available at http://www.usdoj.gov/atr/ 

cases/natlca0.htm 

National Oilwell Inc. and Varco, Inc. (2005) 

Nucor Corp. and Birmingham Steel Corp. (2002) 

United States v. Oracle Corp., 331 F. Supp. 2d 1098 (N.D. Cal. 2004), materials 

available at http://www.usdoj.gov/atr/cases/oracle.htm 

PayPal, Inc. and eBay, Inc. (2002) 

United States v. Premdor Inc., International Paper Co., and Masonite Corp., 

(D.D.C. filed Aug. 3, 2001), 66 Fed. Reg. 45,326 (Aug. 28, 2001), 2002-2 Trade 

Cas. (CCH) ¶ 73,737, materials available at http://www.usdoj.gov/atr/ 

cases/indx327.htm 

Playbill Inc. and Stagebill Media (2002) 

United States v. SBC Communications, Inc. and AT&T Corp., (D.D.C., filed Oct. 

27, 2005), materials available at http://www.usdoj.gov/atr/cases/sbc2.htm, 

http://www.usdoj.gov/atr/public/press_releases/2005/212407.pdf 

United States v. Suiza Foods Corp. and Broughton Foods Co., (E.D. Ky., filed 

Mar. 18, 1999), 64 Fed. Reg. 26,782 (May 17, 1999), 1999-2 Trade Cas. (CCH) 

¶ 72,645, materials available at http://www.usdoj.gov/atr/cases/indx122. 

htm 

Toppan Printing Co., Ltd. and DuPont Photomasks, Inc. (2005) 

United States v. 3D Systems Corp. and DTM Corp., (D.D.C., filed June 6, 2001), 

66 Fed. Reg. 49,200 (Sept. 26, 2001), 2002-2 Trade Cas. (CCH) ¶ 73,738, 

materials available at http://www.usdoj.gov/atr/cases/indx303a.htm 

United States v. UPM-Kymmene Oyj, Raflatac, Inc., Bemis Co., and Morgan 

Adhesives Co., 2003-2 Trade Cas. (CCH) ¶ 74,101 (N.D. Ill. 2003), materials 

available at http://www.usdoj.gov/atr/cases/upm-kymmene.htm 

United States v. Vail Resorts, Inc., Ralston Resorts, Inc., and Ralston Foods, Inc., 

(D. Colo., filed Jan. 3, 1997), 62 Fed. Reg. 5,037 (Feb. 3, 1997), 1997-2 Trade 

Cas. (CCH) ¶ 72,030, materials available at http://www.usdoj.gov/atr/ 

cases/vailre0.htm 

United States v. Verizon Communications, Inc. and MCI, Inc., (D.D.C., filed Oct. 

27, 2005), materials available at http://www.usdoj.gov/atr/cases/verizon. 

htm, http://www.usdoj.gov/atr/public/press_releases/2005/212407.pdf 

United States v. Waste Management, Inc. and Allied Waste Industries, Inc., 

(D.D.C., filed Oct. 14, 2003), 68 Fed. Reg. 47,930 (Aug. 12, 2003), 2004-2 

Trade Cas. (CCH) ¶ 74,478, materials available at http://www.usdoj.gov/ 

atr/cases/wastem3.htm 

Entry 

Market Definition 

Entry 

Efficiencies 

Efficiencies 

Efficiencies 

Competitive Effects 

(Coordinated Interaction) 

Entry 

Efficiencies 

Market Definition, 

Competitive Effects 

(Coordinated Interaction, 

Unilateral Effects) 

Efficiencies 

Entry 

Market Definition, 

Competitive Effects 

(Coordinated Interaction) 

Competitive Effects 

(Unilateral Effects) 

Efficiencies 

Market Definition, 

Entry 

65
Federal Trade Commission Cases 

Case 

Advanced Drainage Systems, Inc. and Hancor Holding Corp. (2005) 

Air Products and Chemicals, Inc.; L’Air Liquide S.A.; and The BOC Group plc. 

(2000) 

American Home Products Corp. and Solvay S.A. (1997), 62 Fed. Reg. 36,513 

(July 8, 1997), materials available at http://www.ftc.gov/opa/1997/02/ 

ahpsolv.htm 

Arch Coal, Inc.; New Vulcan Coal Holdings, LLC; and Triton Coal Co., LLC. 

(2004), 329 F. Supp. 2d 109 (D.D.C. 2004), 2004-2 Trade Cas. (CCH) ¶ 74,513, 

materials available at http://www.ftc.gov/opa/2004/04/archcoalcomp.htm 

Aspen Technology, Inc. and Hyprotech, Ltd. (2004), 69 Fed. Reg. 45,063 (July 28, 

2004), materials available at http://www.ftc.gov/opa/2004/07/aspen.htm 

The Boeing Co. and McDonnell Douglas Corp., materials available at http:// 

www.ftc.gov/opa/1997/07/boeing.htm 

Carilion Health System and Centra Health, Inc. (2005) 

Cemex, S.A. de C.V. and RMC Group PLC, 70 Fed. Reg. 11,669 (Mar. 9, 2005), 

materials available at http://www.ftc.gov/opa/2005/02/cemex.htm 

Cephalon, Inc. and CIMA Labs, Inc. (2004), 69 Fed. Reg. 52,270 (Aug. 25, 2004), 

materials available at http://www.ftc.gov/opa/2004/08/cimacephalon.htm 

Chicago Bridge & Iron Co. N.V.; Chicago Bridge & Iron Co.; and Pitt-Des Moines, 

Inc. (2005), materials available at http://www.ftc.gov/opa/2005/01/cbi.htm 

DaVita Inc. and Gambro Healthcare, Inc. (2005), 70 Fed. Reg. 59,069 (Oct. 11, 

2005), materials available at http://www.ftc.gov/opa/2005/10/davita.htm 

Degussa Corp.; Degussa Aktiengesellschaft; and E.I. du Pont de Nemours & Co. 

(1998), 63 Fed. Reg. 16,552 (Apr. 3, 1998), materials available at http://www. 

ftc.gov/opa/1998/03/degussa.htm 

Diageo plc and Vivendi Universal S.A. (2001), 66 Fed. Reg. 66.896 (Dec. 27, 

2001), materials available at http://www.ftc.gov/opa/2001/12/diageo.htm 

Exxon Corp. and Mobil Corp. (1999), 64 Fed. Reg. 68,101 (Dec. 6, 1999), 

materials available at http://www.ftc.gov/opa/1999/11/exxonmobil.htm 

Federal-Mogul Corp. and T&N PLC (1998), 63 Fed. Reg. 13,410 (Mar. 19, 1998), 

materials available at http://www.ftc.gov/opa/1998/03/fedmogul.htm 

Federated Department Stores, Inc. and The May Department Stores Co. (2005), 

materials available at http://www.ftc.gov/opa/2005/08/federatedmay.htm 

Chapter(s) 

Entry 

Competitive Effects 

(Coordinated 

Interaction) 

Entry 

Efficiencies, Competitive 

Effects (Coordinated 

Interaction) 

Competitive Effects 

(Unilateral Effects) 

Market Definition 

Competitive Effects 

(Unilateral Effects) 

Market Definition 

Entry 

Competitive Effects 

(Unilateral Effects), 

Entry 

Market Definition, 

Entry 

Competitive Effects 

(Coordinated Interaction) 

Competitive Effects 

(Coordinated Interaction) 

Entry 

Entry 

Market Definition 

66
Fortune Brands, Inc. and Allied Domecq (2005) 

General Electric Co. and Agfa-Gevaert N.V. (2003), 68 Fed. Reg. 74,582 (Dec. 24, 

2003), materials available at http://www.ftc.gov/opa/2003/12/geagfa.htm 

General Mills, Inc.; Diageo plc; and The Pillsbury Co. (2001), materials available 

at http://www.ftc.gov/opa/2001/10/pillsbury.htm 

Genzyme Corp. and Ilex Oncology, Inc. (2004), 69 Fed. Reg. 78,029 (Dec. 29, 

2004), materials available at http://www.ftc.gov/opa/2004/12/genzyme. 

htm 

Genzyme Corp. and Novazyme Pharmaceuticals, Inc. (2004), materials available 

at http://www.ftc.gov/opa/2004/01/genzyme.htm 

Glaxo Wellcome plc and SmithKline Beecham plc (2000), 65 Fed. Reg. 82,374 

(Dec. 28, 2000), materials available at http://www.ftc.gov/opa/2000/12/ 

skb.htm 

Healthtrust, Inc. - The Hospital Co. and Holy Cross Health Services of Utah 

(1994), 59 Fed. Reg. 38,176 (July 27, 1994), materials available at http:// 

www.ftc.gov/opa/predaw/F95/healthtrust-2.htm 

Lafarge S.A.; Blue Circle Industries PLC; Blue Circle North America, Inc.; and 

Blue Circle, Inc. (2001), 66 Fed. Reg. 34,682 (June 29, 2001), materials 

available at http://www.ftc.gov/opa/2001/06/lafarge.htm 

Metso Oyj and Svedala Industri AB (2001), 66 Fed. Reg. 48,145 (Sept. 18, 2001), 

materials available at http://www.ftc.gov/opa/2001/09/metso.htm 

Nestle Holdings, Inc.; Dreyer’s Grand Ice Cream Holdings, Inc.; and Dreyer’s 

Grand Ice Cream, Inc. (2003), 68 Fed. Reg. 39,564 (July 2, 2003), materials 

available at http://www.ftc.gov/opa/2003/06/nestle.htm 

Omnicare, Inc. and NeighborCare, Inc. (2005), materials available at http:// 

www.ftc.gov/opa/2005/06/omnicare.htm 

Precision Castparts Corp. and Wyman-Gordon Co. (1999), 64 Fed. Reg. 62,676 

(Nov. 17, 1999), materials available at http://www.ftc.gov/opa/1999/11/ 

pcc2.htm 

Quest Diagnostics, Inc. and Unilab Corp. (2003), 69 Fed. Reg. 9,082 (Feb. 27, 

2003), materials available at http://www.ftc.gov/opa/2003/02/quest.htm 

R.J. Reynolds Tobacco Holdings, Inc. and British American Tobacco plc (2004), 

materials available at http://www.ftc.gov/opa/2004/06/batrjr.htm 

Rhodia; Donau Chemie AG; and Albright & Wilson PLC (2000), 65 Fed. Reg. 

15,156 (Mar. 21, 2000), materials available at http://www.ftc.gov/opa/ 

2000/03/wsl.htm 

Rite Aid Corp. and Revco D.S., Inc. (1996), materials available at http://www. 

ftc.gov/opa/1996/04/riterevc.htm 

Competitive Effects 

Unilateral Effects) 

Competitive Effects 

Unilateral Effects) 

Market Definition, 

Competitive Effects 

(Unilateral Effects) 

Efficiencies 

Efficiencies 

Competitive Effects 

Unilateral Effects) 

Entry 

Competitive Effects 

(Coordinated Interaction) 

Competitive Effects 

(Unilateral Effects), Entry 

Market Definition, 

Competitive Effects 

(Unilateral Effects), Entry 

Entry 

Entry 

Market Definition, 

Competitive Effects 

(Unilateral Effects) 

Competitive Effects 

(Coordinated Interaction) 

Competitive Effects 

(Coordinated Interaction) 

Market Definition, 

Competitive Effects 

(Unilateral Effects) 

67
Staples, Inc. and Office Depot, Inc. (1997), FTC v. Staples, Inc., 970 F. Supp. 1066 

(D.D.C. 1997), materials available at http://www.ftc.gov/opa/1997/06/ 

stapdec.htm 

Swedish Match North America, Inc. and National Tobacco Co., L.P. (2000), FTC v. 

Swedish Match North America, Inc., 131 F. Supp. 2d. 151 (D.D.C. 2000), 

materials available at http://www.ftc.gov/opa/2000/12/swedish2.htm 

Tenet Health Care Systems and Slidell Memorial Hospital (2003), materials 

available at http://www.ftc.gov/opa/2003/04/lahospmerger.htm 

The Sherwin-Williams Co. and Duron, Inc. (2004), 69 Fed. Reg. 57,934 (Sept. 28, 

2004), materials available at http://www.ftc.gov/bc/earlyterm/2004/08/ 

et040827.PDF 

Thrifty Drug Stores (TCH Corp.) and PayLess Drug Stores (1994), 59 Fed. Reg. 

15,736 (Apr. 4, 1994), materials available at http://www.ftc.gov/opa/ 

predawn/F95/thriftypayles2.htm 

Wm. Wrigley, Jr. Co. and Altria Group, Inc. (Kraft Foods, Inc.), 70 Fed. Reg. 

28,944 (May 19, 2005), materials available at http://www.ftc.gov/os/ 

closings/staffclosing.htm 

Market Definition, 

Entry 

Market Definition, 

Entry 

Market Definition, 

Competitive Effects 

(Unilateral Effects) 

Entry 

Market Definition 

Entry 

68