Vertical Mergers and Coordinated Effects: Implications for Merger Policy

Vertical relationships can have coordinated effects with important implications for planned revisions of the U.S. Department of Justice merger guidelines. Despite increased efforts to prosecute explicit collusion, increased fines, and the use of creative detection and enforcement techniques, firms continue to engage in explicit collusion, harming consumers, competitors, and economic dynamism. Firms engage in a wide variety of behaviors to prevent cheating or entry from disrupting collusion. In some cases, those behaviors include mergers. Vertical mergers can expand the scope for monitoring, coordination, punishment, and exclusion on the part of horizontally colluding firms. The very high horizontal concentration levels observed in markets with explicit collusion also suggests that the merger guidelines address such patterns of market dominance.

By Margaret C. Levenstein & Valerie Y. Suslow^[1]

In this comment we discuss the role that vertical relationships have in coordinated effects and the implications for any revisions of the U.S. Department of Justice merger guidelines. We highlight empirical evidence in support of our recommendation that the merger guidelines provide for review of mergers of vertically connected firms with the risk of coordinated effects in mind.

Our research has shown that, despite increased efforts to prosecute explicit collusion, increased fines, and the use of creative detection and enforcement techniques, firms continue to engage in