Vertical 

Merger 

Guidelines 

U.S. Department of Justice 

& 

The Federal Trade Commission 

June 30, 2020 
Table of Contents 

1 Overview...................................................................................................................................... 1 

2 Evidence of Adverse Competitive Efects................................................................................ 3 

3 Market Defnition, Related Products, Market Shares, and Concentration......................... 3 

4 Unilateral Efects ....................................................................................................................... 4 

4.a Foreclosure and Raising Rivals’ Costs ........................................................................... 4 

4.b Access to Competitively Sensitive Information.............................................................. 10 

5 Coordinated Efects ................................................................................................................... 10 

6 Procompetitive Efects ............................................................................................................. 11 
 

 

 

 

 

 

 

U.S. DEPARTMENT OF JUSTICE AND THE FEDERAL TRADE COMMISSION 

VERTICAL MERGER GUIDELINES 

1. OVERVIEW 

These Vertical Merger Guidelines outline the principal analytical techniques, practices, and 

enforcement policies of the Department of Justice and the Federal Trade Commission (the 

“Agencies”) with respect to a range of transactions often described as vertical mergers and 

acquisitions.1 The relevant statutory provisions include Section 7 of the Clayton Act, 15 U.S.C. § 

18, Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1–2, and Section 5 of the Federal Trade 

Commission Act, 15 U.S.C. § 45. Most particularly, Section 7 of the Clayton Act prohibits any 

merger or acquisition if, “in any line of commerce or in any activity affecting commerce in any 

section of the country, the effect of such acquisition may be substantially to lessen competition, or 

to tend to create a monopoly.” This provision applies to vertical mergers, as Congress made plain 

in the 1950 amendments to the Clayton Act. 

These Guidelines describe how the agencies analyze a range of non-horizontal transactions. Where 

they use the term “vertical,” that term should not be read to narrow the applicability of these 

Guidelines. The analytical techniques, practices, and enforcement policies described in these 

Guidelines apply to strictly vertical mergers (those that combine firms or assets at different stages 

of the same supply chain), “diagonal” mergers (those that combine firms or assets at different 

stages of competing supply chains), and vertical issues that can arise in mergers of complements. 

In describing a vertical relationship, a stage closer to final consumers (such as a distributor, retailer, 

or finished goods manufacturer) is termed “downstream,” and a stage further from final consumers 

(such as a supplier, wholesaler, or input manufacturer) is termed “upstream.” 

Mergers often present both horizontal and vertical elements, and the Agencies may apply both the 

Horizontal Merger Guidelines2 and the Vertical Merger Guidelines in their evaluation of a 

transaction. In addition, if one of the parties to a transaction could use its pre-existing operations 

to facilitate entry into the other’s market, the Agencies may consider whether the merger removes 

competition from a potential entrant, using the methods described in the Horizontal Merger 

Guidelines. 

These Guidelines are intended to assist the business community and antitrust practitioners by 

increasing the transparency of the analytical process underlying the Agencies’ enforcement 

1 These Guidelines supersede the extant portions of the Department of Justice’s 1984 Merger Guidelines, 

which are now withdrawn and superseded in their entirety. They reflect the ongoing accumulation of 

experience at the Agencies. These Guidelines may be revised from time to time as necessary to reflect 

significant changes in enforcement policy, to clarify existing policy, or to reflect new learning. 

2 U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (2010). 

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decisions. They may also assist the courts in developing an appropriate framework for interpreting 

and applying the antitrust laws to the types of transactions discussed herein.3 

These Guidelines should be read in conjunction with the Horizontal Merger Guidelines. Many of 

the principles and analytic frameworks used to assess horizontal mergers apply to vertical mergers. 

For example, Section 1 of the Horizontal Merger Guidelines—describing in general terms the 

purposes and limitations of the Horizontal Merger Guidelines and the goals of merger 

enforcement—is also relevant to the consideration of vertical mergers. Other topics addressed in 

the Horizontal Merger Guidelines, but not addressed herein – such as the analytic framework for 

evaluating entry considerations, the treatment of the acquisition of a failing firm or its assets, and 

the acquisition of a partial ownership interest – are relevant to the evaluation of the competitive 

effects of vertical mergers as well. 

Vertical mergers, however, also raise distinct considerations, which these Guidelines address. For 

example, vertical mergers often benefit consumers through the elimination of double 

marginalization, which tends to lessen the risks of competitive harm. While the agencies more 

often encounter problematic horizontal mergers than problematic vertical mergers, vertical 

mergers are not invariably innocuous. These Guidelines describe the framework applied by the 

Agencies in distinguishing anticompetitive from procompetitive (and competitively neutral) 

vertical mergers. 

As with horizontal mergers, the Agencies normally examine effects on the actual and potential 

direct customers of the merging parties, and, if different, the final consumers of firms that utilize 

the goods or services of the merging parties. The Agencies are concerned with harm to 

competition, not to competitors. When a merger involves products at different levels of a supply 

chain, the direct customers the Agencies will consider are actual and potential buyers of the 

downstream products. Absent convincing evidence to the contrary, the Agencies presume that 

adverse effects on these direct customers lead to adverse effects on final consumers. 

The enhancement of market power by buyers, sometimes called “monopsony power,” has adverse 

effects comparable to the enhancement of market power by sellers. The Agencies employ an 

analogous framework to analyze vertical mergers that may enhance the market power of buyers. 

In evaluating effects, the Agencies focus on the likely changes in competitive outcomes caused by 

a merger. Therefore, the Agencies focus on competitive outcomes caused by conduct that would 

be compatible with firms’ abilities and incentives following a vertical merger, but would not be in 

the absence of the merger. To the extent practicable, the Agencies use a consistent set of facts and 

assumptions to evaluate both the potential competitive harm from a vertical merger and the 

potential benefits to competition. 

3 These Guidelines are not intended to describe how the Agencies will conduct the litigation of cases they 

decide to bring. Although relevant in that context, these Guidelines neither dictate nor exhaust the range of 

evidence the Agencies may introduce in litigation. 

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2. EVIDENCE OF ADVERSE COMPETITIVE EFFECTS 

The Agencies consider any reasonably available and reliable evidence to address the central 

question of whether a vertical merger may substantially lessen competition. The types of evidence 

described in Section 2.1 of the Horizontal Merger Guidelines can also be informative about the 

effects of vertical mergers, including actual effects observed in consummated mergers, direct 

comparisons based on experience, and evidence about the disruptive role of a merging party. The 

Agencies may also consider evidence about the disruptive role of non-merging firms – for 

example, when evaluating a theory that a vertical merger may allow the merged firm to discipline 

disruptive rivals. The Agencies may also consider market shares and concentration in relevant 

markets (see Section 3), and may rely on evidence of head-to-head competition between one 

merging firm and rivals that trade with the other merging firm when evaluating unilateral effects 

(see Section 4). The sources of evidence on which the Agencies rely are the same as those set forth 

in Section 2.2 of the Horizontal Merger Guidelines and include documents and statements of the 

merging parties, their customers, and other industry participants and observers. 

3. MARKET DEFINITION, RELATED PRODUCTS, MARKET SHARES, AND CONCENTRATION 

In any merger enforcement action involving a vertical merger, the Agencies will normally identify 

one or more relevant markets in which the merger may substantially lessen competition. Many of 

the general purposes and limitations of market definition described in Section 4 of the Horizontal 

Merger Guidelines are also relevant when the Agencies define markets for vertical mergers, and 

the Agencies generally use the methodology set forth in Sections 4.1 and 4.2 of the Horizontal 

Merger Guidelines to define relevant markets for vertical mergers. 

When the Agencies identify a potential competitive concern in a relevant market, they will also 

specify one or more related products. A related product is a product or service that is supplied or 

controlled by the merged firm and is positioned vertically or is complementary to the products and 

services in the relevant market. For example, a related product could be an input, a means of 

distribution, access to a set of customers, or a complement. The same transaction can give rise to 

more than one vertical concern, and different concerns may affect different relevant markets. 

Example 1: Relevant markets can be upstream or downstream 

Situation: A retail chain buys the manufacturer of Brand A cleaning products. 

Discussion: In this example, the merged firm’s supply of Brand A cleaning products (the 

related product) could affect downstream competition between retailers in a given 

geographic area (the relevant market). The Agencies may also consider whether the 

merged firm’s retailing of cleaning products in a given geographic area (the related 

product) could affect competition between manufacturers of cleaning products in that area 

(the relevant market). 

The Agencies may consider measures of market shares and market concentration in a relevant 

market in their evaluation of competitive effects. The Agencies evaluate market shares and 

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concentration in conjunction with other reasonably available and reliable evidence for the ultimate 

purpose of determining whether a merger may substantially lessen competition. 

The Agencies use the methodology set out in Section 5 of the Horizontal Merger Guidelines to 

measure shares and concentration in a relevant market, but do not rely on the thresholds in 

Section 5.3 as screens for or indicators of competitive effects from vertical theories of harm. 

Existing levels of concentration may nonetheless be relevant. For example, high concentration in 

the relevant market may provide evidence about the likelihood, durability, or scope of 

anticompetitive effects in that relevant market. 

4. UNILATERAL EFFECTS 

A vertical merger may diminish competition between one merging firm and rivals that trade with, 

or could trade with, the other merging firm. This section discusses common types of unilateral 

effects arising from vertical mergers. Section (a) discusses foreclosure and raising rivals’ costs. 

Section (b) discusses competitively sensitive information. These effects do not exhaust the types 

of possible unilateral effects. 

a. Foreclosure and Raising Rivals’ Costs 

A vertical merger may diminish competition by allowing the merged firm to profitably use its 

control of the related product to weaken or remove the competitive constraint from one or more of 

its actual or potential rivals in the relevant market. For example, a merger may increase the 

vertically integrated firm’s incentive or ability to raise its rivals’ costs by increasing the price or 

lowering the quality of the related product. The merged firm could also refuse to supply rivals with 

the related products altogether (“foreclosure”). 

In identifying whether a vertical merger may diminish competition due to unilateral foreclosure or 

raising rivals’ costs,4 the Agencies generally consider whether the following conditions are 

satisfied: 

(1) Ability: By altering the terms by which it provides a related product to one or more of its rivals, 

the merged firm would likely be able to cause those rivals (a) to lose significant sales in the 

relevant market (for example, if they are forced out of the market; if they are deterred from 

innovation, entry, or expansion, or cannot finance those activities; or if they have incentives to 

pass on higher costs through higher prices) or (b) to otherwise compete less aggressively for 

customers’ business. 

4 For ease of exposition, the principal discussion is about input foreclosure and raising rivals’ input costs 

following a merger between vertically related firms, where the concern is that the merged firm could 

profitably use its supply of an input (the related product) to weaken the competitive constraint it faces from 

rivals in the downstream market (the relevant market). Examples in this section discuss the analogous 

analysis for foreclosure or raising rivals’ costs that raise barriers to entry, customer foreclosure and raising 

rivals’ distribution costs, and mergers of complements. 

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This element would not be satisfied, and in turn a merger would rarely warrant close scrutiny 

for its potential to lead to foreclosure or raising rivals’ costs, if rivals could readily switch 

purchases to alternatives to the related product, including self-supply, without any meaningful 

effect on the price, quality, or availability of products or services in the relevant market. 

The Agencies’ review of the merged firm’s rivals’ ability to switch to alternatives to the related 

product may include, but is not limited to, the types of evidence the Agencies use to evaluate 

customer switching when implementing the hypothetical monopolist test, listed in Section 

4.1.3 of the Horizontal Merger Guidelines. 

(2) Incentive: The merged firm, as a result of the merger, would likely find it profitable to foreclose 

rivals, or offer inferior terms for the related product, because it benefits significantly in the 

relevant market when rivals lose sales or alter their behavior in response to the foreclosure or 

to the inferior terms. 

This element would not be satisfied, and in turn a merger would rarely warrant close scrutiny 

for its potential to induce foreclosure or raise rivals’ costs, if the merged firm would not benefit 

from a reduction in actual or potential competition with users of the related product in the 

relevant market. 

The Agencies’ assessment of the effect of a vertical merger on the incentive to foreclose rivals 

or raise their costs by changing the terms of the related product will be fact-specific. For 

example, in the case of foreclosure, the Agencies generally consider whether the merged firm’s 

gains in the relevant market would likely outweigh any losses from reduced sales of the related 

product. 

Mergers for which these conditions are met potentially raise significant competitive concerns and 

often warrant scrutiny. 

For mergers that warrant scrutiny, the Agencies will determine whether, based on an evaluation of 

the facts and circumstances of the relevant market, the merger may substantially lessen 

competition. This evaluation will generally include an assessment of the likely net effect on 

competition in the relevant market of all changes to the merged firm’s unilateral incentives. The 

merged firm may foreclose its rivals or raise their costs by changing the terms offered for the 

related product, but a vertical merger can also change other incentives. The elimination of double 

marginalization, for example, can confer on the merged firm an incentive to set lower downstream 

prices. The price that a downstream firm pays for an input supplied by an independent upstream 

firm may include a markup over the upstream firm’s marginal cost. If a downstream and an 

upstream firm merge, and the merged firm supplies itself with its own related product, it will have 

access to the input at cost. (See Section 6.) The likely merger-induced increase or decrease in 

downstream prices would be determined by considering the impact of both these effects, as well 

as any other competitive effects. 

To the extent practicable and appropriate, the Agencies will use the same set of facts and 

assumptions to evaluate both the potential harm from a vertical merger and the potential benefits 

of the elimination of double marginalization, and will focus on evaluating conduct that would be 

most profitable for the merged firm as a whole. 

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Where sufficient relevant data are available, the Agencies may construct economic models 

designed to quantify the net effect on competition. The Agencies may employ merger simulation 

models to assist in this quantitative evaluation. These models often include independent price 

responses by non-merging firms and may incorporate feedback from the different effects on 

incentives. The Agencies do not treat merger simulation evidence as conclusive in itself, and they 

place more weight on whether merger simulations using reasonable models consistently predict 

substantial price increases than on the precise prediction of any single simulation. The Agencies 

may also determine that a merger may substantially lessen competition based on an evaluation of 

qualitative evidence of all potential effects. 

The next paragraphs provide illustrative examples of the application of this general framework. 

The examples do not exhaust the types of possible foreclosure concerns. 

Example 2: Input foreclosure and raising rivals’ costs 

Situation: Upstream firms supply oranges to downstream firms, which use the oranges to 

produce orange juice. All orange suppliers make take-it-or-leave-it offers to sell at 

constant unit prices.5 A supplier of oranges (the related product) merges with a producer 

of orange juice (the relevant market) that buys its entire orange demand from the supplier. 

Discussion: The merged firm may have the ability to restrict the supply of oranges to rival 

orange juice producers. If those rivals lack alternative sources of oranges to those of the 

merged firm in sufficient quantity at comparable price and quality, the merged firm may 

be able to increase their costs by raising the price at which it sells them oranges or by 

refusing to sell them oranges altogether. 

The Agencies may assess whether the merged firm would likely have an incentive to raise 

the price at which it supplies oranges to rivals. This assessment may focus on the resulting 

reduction in competition, including any reduction due to the diversion of sales of orange 

juice to the merged firm. Capturing the downstream margin on the diverted sales through 

merger may make a price increase profitable, even though the price increase would not 

be profitable for the orange supplier absent the merger. The effect on the price the merged 

firm charges for oranges depends on the merged firm’s gains from diverted sales in the 

relevant market and from increased prices in the relevant market. 

The Agencies may also consider whether the merged firm may have an incentive to stop 

supplying oranges to rival orange juice producers altogether. In doing so, the merged firm 

would lose the margin on the forgone sales of oranges, but may benefit from a higher 

margin and increased sales of orange juice diverted from its rivals. If the benefits from 

5 By “constant unit prices,” we refer to a simple linear price per-unit with no other fees or offsets. The 

pricing structure is relevant to the likelihood and the degree of both raising rivals’ costs and the elimination 

of double marginalization. 

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increased downstream sales outweigh the costs of the forgone upstream sales, the merged 

firm may find it profitable to foreclose. 

In either case, the merged firm will likely source its oranges at reduced cost rather than 

paying a price that includes a margin to an independent firm, giving it an incentive to set 

lower prices on its own orange juice products (the effects of eliminating double 

marginalization). To determine whether the merger may substantially lessen competition, 

the Agencies would analyze the specific facts and circumstances, including in particular 

the relative magnitude of these offsetting incentives. 

Example 3: Raising the input costs of rivals with bargaining 

Situation: A firm supplies Product A to a number of competing downstream retailers, 

each of which would lose significant business overall if it did not stock Product A. Terms 

are set through bargaining, and contracts take the form of constant unit wholesale prices. 

The supplier of Product A merges with one of the retailers. 

Discussion: The vertical merger may diminish competition between retailers (the relevant 

market) by giving the merged firm the leverage to raise its rivals’ costs by negotiating 

increased wholesale prices for the firm’s supply of Product A (the related product) from 

its rival retailers. Compared to the manufacturer of Product A acting independently, the 

merged firm may benefit downstream if it refusesto supply one or more of its downstream 

rivals and if such rivals lose sales as a result. This benefit improves the merged firm’s 

alternative to a supply agreement should negotiations take time to resolve, or fail 

altogether, and thus may increase the merged firm’s bargaining leverage with rival 

retailers. 

Rivals that pay higher wholesale prices for Product A would likely set higher retail prices. 

In contrast, the merged firm will likely lower its costs for sourcing Product A because it 

will not pay a wholesale price to a third party that includes a markup over cost, providing 

the merged firm with an incentive to lower its retail price for Product A. It is a factual 

question whether competition in the retail market would be substantially lessened, such 

that consumers in the retail market would pay higher prices, on average, after the merger. 

Example 4: Creating the need for two-level entry 

Situation: Company A is the sole supplier of an active ingredient required to make an offpatent pharmaceutical drug produced only by Company B. Company A’s supply of the 

active ingredient is the related product. It sets a constant unit price. Company C is 

considering entering the relevant market with its own version of the drug. Were it to enter, 

head-to-head competition with Company B would be significant and prices for the drug 

would likely fall significantly, leading to increased sales. Company B buys Company A. 

In the absence of the merger, Company A would benefit from Company C’s entry. 

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Discussion: The merger may diminish competition in the relevant market by making entry 

by Company C less likely. In the absence of the merger, Company A would likely have 

an incentive to facilitate the entry of Company C and to supply Company C if it did enter. 

The merged firm, on the other hand, may have the ability to prevent Company C from 

successfully entering the relevant market by refusing to supply Company C with any 

active ingredient. In this case, Company C’s successful entry into the relevant market 

may require Company C to produce the active ingredient as well. This two-level entry 

may be more costly and riskier than entering the relevant market alone, and thus may 

deter Company C from entering. Moreover, the merged firm may have an incentive to 

refuse to supply Company C unless it is markedly more efficient or targeting additional 

customer groups or markets. 

The Agencies would also consider the effects on competition if the merged firm would 

eliminate double marginalization by sourcing the active ingredient at cost rather than 

paying a price that included a markup. The likely net effect on competition in the relevant 

market would depend, in part, on the extent to which entry was likely absent the merger. 

Example 5: Raising rivals’ costs of distribution 

Situation: A distributor of components to customize trucks for different uses offers 

competing liftgates for loading. Liftgates are supplied at a constant unit wholesale price. 

The distributor buys a manufacturer of liftgates. The distributor has developed a strong 

position in Region X based on offering superior support and developing close customer 

relationships. Many customers consider other distributors to be inadequate substitutes for 

the merged firm’s distribution of liftgates in Region X (the related product). 

Discussion: The Agencies may consider whether the merger would harm competition in 

the market for the manufacture of liftgates in Region X (a relevant market). Because 

customers prefer the merged firm’s superior distribution service, the merged firm may be 

able to disadvantage manufacturers of rival liftgates by setting higher retail prices for 

their products. The profitability of such a strategy would depend on diversion to the 

merged firm’s liftgates as well as sales lost to rival distributors. 

A potential harm in this example is diminished competition between manufacturers of 

liftgates (a relevant market upstream from the market for the distribution of liftgates). 

The Agencies, however, may consider the impact on retail prices when evaluating the 

effects on competition in the relevant market. The competitiveness of upstream 

manufacturers depends, in part, on the derived demand from customers of the 

downstream distributors, who choose among manufacturers’ products based on 

downstream retail prices. Competition in the retail sale of liftgates may be harmed if the 

merged firm raises retail prices for rival brands, even though rival manufacturers may 

respond to the change in the merged firm’s incentives by setting lower, not higher, 

wholesale prices. The Agencies would also evaluate the extent of the merged firm’s 

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incentive to set a lower price for liftgates because of the elimination of double 

marginalization. 

Example 6: Merger of complements raising vertical issues 

Situation: Manufacturers use batteries and motors when making electric scooters. 

Electric scooter manufacturers use different batteries and motors based on their 

production technologies. The two components are complements: manufacturers make 

more scooters, and demand more of both components, when the price of either 

component falls. All components are sold under contracts that specify a constant unit 

price. The leading maker of motors for scooters merges with a manufacturer of batteries 

for scooters. 

Discussion: Motors and batteries are complementary inputs into the production of electric 

scooters. Neither input is upstream nor downstream from the other in the supply chain. 

The Agencies may investigate whether the merged firm would have the ability and 

incentive to disadvantage rival manufacturers of batteries. For example, the merged firm 

might do so by increasing the price of its motors (the related product) to its customers 

(e.g., electric scooter manufacturers) that do not also buy the merged firm’s batteries. The 

merged firm may also have an incentive to offer lower prices for batteries to its customers 

that do buy both components from it. If the Agencies conclude that both countervailing 

price effects are likely to be present post-merger, the Agencies will conduct a balancing 

of the effects to determine the net effect on the prices customers will likely pay. 

The Agencies may also use an analysis similar to the above to investigate whether the 

merged firm would have the ability and incentive to disadvantage rival manufacturers of 

motors (in an additional relevant market) by increasing the price of batteries (the related 

product) to its customers that do not also buy the merged firm’s motors. 

Example 7: Diagonal merger 

Situation: An electronics firm develops a component that enhances the wireless capability 

of low-end laptop computers. This component intensifies competition between low-end 

laptop computers that incorporate the component as an input and high-end laptop 

computers that already provide premium wireless capabilities without the 

component. The largest manufacturer of high-end laptop computers with premium 

wireless capability acquires this electronics firm. The acquisition neither expands nor 

improves the functionality that the acquiring firm can provide. The acquired technology 

is not compatible with the acquiring firm’s products, and redesigning its products to 

incorporate the acquired technology would neither lower its marginal costs nor improve 

the wireless capabilities of its laptops. 

Discussion: The Agencies may investigate whether the merged firm would have the 

ability and incentive to reduce competition in the market for laptop computers (a relevant 

market) by increasing the price, degrading the quality, or reducing the availability of the 

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component providing wireless capability (the related product). The incompatibility 

between the technologies of the merging firms strongly suggests that this merger is 

unlikely to generate any benefits due to the elimination of double marginalization. 

b. Access to Competitively Sensitive Information 

In a vertical merger, the transaction may give the combined firm access to and control of sensitive 

business information about its upstream or downstream rivals that was unavailable to it before the 

merger. For example, a downstream rival to the merged firm may have been a premerger customer 

of the upstream firm. Post-merger, the downstream component of the merged firm could now have 

access to its rival’s sensitive business information. In some circumstances, the merged firm can 

use access to a rival’s competitively sensitive information to moderate its competitive response to 

its rival’s competitive actions. For example, it may preempt or react quickly to a rival’s 

procompetitive business actions. Under such conditions, rivals may see less competitive value in 

taking procompetitive actions. Relatedly, rivals may refrain from doing business with the merged 

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

information as described above. They may become less effective competitors if they must rely on 

less preferred trading partners, or if they pay higher prices because they have fewer competing 

options. 

5. COORDINATED EFFECTS 

In some cases, a vertical merger may diminish competition by enabling or encouraging postmerger coordinated interaction among firms in the relevant market that harms customers. Section 

7 of the Horizontal Merger Guidelines describes how the Agencies evaluate coordinated effects. 

In particular, Section 7.1 notes that the Agencies are more likely to challenge a merger on the basis 

of coordinated effects when the relevant market shows signs of vulnerability to coordinated 

conduct, and the Agencies have a credible basis on which to conclude that the merger may enhance 

that vulnerability. Section 7.2 sets forth evidence relevant to evaluating whether a market is 

vulnerable to coordination. The theories of harm discussed in the Horizontal Merger Guidelines, 

as well as those discussed below, are not exhaustive, but rather are illustrations of the manner in 

which a merger may lessen competition due to coordinated effects. 

A vertical merger may enhance the market’s vulnerability to coordination by eliminating or 

hindering a maverick firm that otherwise plays or would play an important role in preventing or 

limiting anticompetitive coordination in the relevant market. For example, the merged firm could 

use its control over a related product or service to harm the ability of a non-merging maverick to 

compete in the relevant market, thereby increasing the likelihood of coordinated interaction among 

the merged firm and rivals participating in that market. 

Coordinated effects may also arise in other ways, including when changes in market structure or 

the merged firm’s access to confidential information facilitate (a) reaching a tacit agreement 

among market participants, (b) detecting cheating on such an agreement, or (c) punishing cheating 

firms. 

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Example 8: Vertical merger raising coordinated effects issues 

Situation: A merger combines a manufacturer of components and a maker of final 

products. 

Discussion: Where the component manufacturer supplies rival makers of final products, 

it will have information on the rival’s volume of final product, and thus will be better able 

to detect cheating on a tacit agreement to limit the output of final products. As a result, 

the merger may make an agreement to limit supply more effective. 

Some effects of a vertical merger may make the market less vulnerable to coordination. For 

example, a vertical merger’s elimination of double marginalization (see Section 6) may increase 

the merged firm’s incentive to cheat on a tacit agreement, thereby reducing the risk of coordinated 

effects. 

6. PROCOMPETITIVE EFFECTS 

Vertical mergers combine complementary economic functions and eliminate contracting frictions, 

and therefore have the capacity to create a range of potentially cognizable efficiencies that benefit 

competition and consumers. Vertical mergers combine complementary assets, including those 

used at different levels in the supply chain, to make a final product. A single firm able to coordinate 

how these assets are used may be able to streamline production, inventory management, or 

distribution. It may also be able to create innovative products in ways that would not likely be 

achieved through arm’s-length contracts. 

The Agencies evaluate efficiency claims by the parties using the approach set forth in Section 10 

of the Horizontal Merger Guidelines, as elaborated here. Cognizable efficiencies are mergerspecific efficiencies that have been verified and do not arise from anticompetitive reductions in 

output or service. The Agencies do not challenge a merger if cognizable efficiencies are of a 

character and magnitude such that the merger is unlikely to be anticompetitive in any relevant 

market.6 

Due to the elimination of double marginalization, mergers of vertically related firms will often 

result in the merged firm’s incurring lower costs for the upstream input than the downstream firm 

would have paid absent the merger. This is because the merged firm will have access to the 

upstream input at cost, whereas often the downstream firm would have paid a price that included 

a markup. The elimination of double marginalization is not a production, research and 

development, or procurement efficiency; it arises directly from the alignment of economic 

incentives between the merging firms. Since the same source drives any incentive to foreclose or 

raise rivals’ costs, the evidence needed to assess those competitive harms overlaps substantially 

with that needed to evaluate the procompetitive benefits likely to result from the elimination of 

double marginalization. 

6 The Agencies in their prosecutorial discretion may also consider efficiencies that are not strictly in the 

relevant market, using the principles set out in footnote 14 of the Horizontal Merger Guidelines. 

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Mergers of firms that make complementary products can lead to a pricing efficiency analogous to 

the elimination of double marginalization. Absent the merger, the merging parties would set the 

price for each complement without regard to the impact of lower prices for one on demand for the 

other. If the two merge, the merged firm has an incentive to set prices that maximize the profits of 

the firm as a whole, which may result in lower prices for each component. Any incentive to offer 

lower prices may be more pronounced if the merged firm can target lower prices at customers that 

buy both components from it. 

While it is incumbent upon the merging firms to provide substantiation for claims that they will 

benefit from the elimination of double marginalization, the Agencies may independently attempt 

to quantify its effect based on all available evidence, including the evidence they develop to assess 

the potential for foreclosure or raising rivals’ costs. In verifying the elimination of double 

marginalization, the agencies typically examine the likely cost saving to the merged firm from 

self-supplying inputs that would have been purchased from independent suppliers absent the 

merger. Creditable quantifications of the elimination of double marginalization are generally of 

similar precision and reliability to the Agencies’ quantifications of likely foreclosure, raising 

rivals’ costs, or other competitive effects. 

In assessing the merger-specificity of the elimination of double marginalization, the Agencies 

typically examine whether it would likely be less costly for the merged firm to self-supply inputs 

following the merger than for the downstream firm to purchase them from one or more 

independent firms absent the merger. The merging parties’ evidence about existing contracting 

practices is often the best evidence of the price the downstream firm would likely pay for inputs 

absent the merger. The Agencies also consider other evidence, such as contracts between similarly 

situated firms in the same industry and contracting efforts considered by the merging firms. The 

Agencies do not, however, reject the merger specificity of the elimination of double 

marginalization solely because it could theoretically be achieved but for the merger, if such 

practices are not reflected in documentary evidence. The Agencies will generally take the same 

approach to evaluate the likely contractual arrangements absent the transaction as the one they use 

when evaluating raising rivals’ costs or foreclosure. 

The Agencies’ assessment of the effects of the elimination of double marginalization on 

competition in the relevant markets relative to unilateral and coordinated effects is described 

further in Sections 4 and 5. 

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