NCPA - National Center for Policy Analysis

Clinton Administration Challenges Vertical Mergers

June 17, 1999

Antitrust enforcers within the Clinton administration are much more likely to oppose vertical mergers than those in the Reagan and Bush administrations.

Vertical mergers involve agreements that link companies in the same supply chain -- a retailer purchasing the company that supplies its goods, for example. A horizontal merger occurs when a company buys another company in the same business.

  • The Clinton administration has challenged more than 12 times as many vertical deals than the Reagan and Bush administrations combined.
  • In the 12 years of the Reagan and Bush administrations, no vertical mergers were challenged in court by the Justice Department and only two were targeted by the Federal Trade Commission.
  • The Clinton administration, by contrast, has challenged nearly two dozen vertical agreements since 1992.
  • Since all the challenges so far have ended either with consent agreements between the government and the companies or a collapse or withdrawal of the mergers, the Supreme Court has not heard a case involving a vertical merger in more than two decades.

Luke Froeb, an economist at Vanderbilt University who worked in the Justice Department under President Reagan, says that Clinton's trustbusters should clearly state the guidelines they use when they review vertical mergers -- because uncertainty kills innovation and investment.

He says that one indication of a good merger was if a competitor complained. If a merger was likely to raise prices so that rivals would benefit, competitors usually remained silent. But if rivals complained, prices were likely to decline.

Source: Joseph Guinto, "Antitrust Targets Vertical Deals," Investor's Business Daily, June 17, 1999.


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