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2. Applying the Merger Guidelines

2.1. Guideline 1: Mergers Raise a Presumption of Illegality When They Significantly Increase Concentration in a Highly Concentrated Market

Market concentration and the change in concentration due to the merger are often useful indicators of a merger’s risk of substantially lessening competition. In highly concentrated markets, a merger that eliminates a significant competitor creates significant risk that the merger may substantially lessen competition or tend to create a monopoly. As a result, a significant increase in concentration in a highly concentrated market can indicate that a merger may substantially lessen competition, depriving the public of the benefits of competition.

The Supreme Court has endorsed this view and held that “a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market[,] is so inherently likely to lessen competition substantially that it must be enjoined in the absence of [rebuttal] evidence.” [Endnote 9] In the Agencies’ experience, this legal presumption provides a highly administrable and useful tool for identifying mergers that may substantially lessen competition.

An analysis of concentration involves calculating pre-merger market shares of products [Endnote 10] within a relevant market (see Section 4.3 for a discussion of market definition and Section 4.4 for more details on computing market shares). The Agencies assess whether the merger creates or further consolidates a highly concentrated market and whether the increase in concentration is sufficient to indicate that the merger may substantially lessen competition or tend to create a monopoly. [Endnote 11]

The Agencies generally measure concentration levels using the Herfindahl-Hirschman Index (“HHI”). [Endnote 12] The HHI is defined as the sum of the squares of the market shares; it is small when there are many small firms and grows larger as the market becomes more concentrated, reaching 10,000 in a market with a single firm. Markets with an HHI greater than 1,800 are highly concentrated, and a change of more than 100 points is a significant increase. [Endnote 13] A merger that creates or further consolidates a highly concentrated market that involves an increase in the HHI of more than 100 points [Endnote 14] is presumed to substantially lessen competition or tend to create a monopoly. [Endnote 15] The Agencies also may examine the market share of the merged firm: a merger that creates a firm with a share over thirty percent is also presumed to substantially lessen competition or tend to create a monopoly if it also involves an increase in HHI of more than 100 points. [Endnote 16]

Indicator Threshold for Structural Presumption
Post-merger HHI

Market HHI greater than 1,800

AND

Change in HHI greater than 100

Merged Firm's Market Share

Share greater than 30%

AND

Change in HHI greater than 100

When exceeded, these concentration metrics indicate that a merger’s effect may be to eliminate substantial competition between the merging parties and may be to increase coordination among the remaining competitors after the merger. This presumption of illegality can be rebutted or disproved. The higher the concentration metrics over these thresholds, the greater the risk to competition suggested by this market structure analysis and the stronger the evidence needed to rebut or disprove it.


[Endnote 9] United States v. Phila. Nat’l Bank, 374 U.S. 321, 363 (1963); see, e.g., FTC v. v. Hackensack Meridian Health, Inc., 30 F.4th 160, 172-73 (3d Cir. 2022); United States v. AT&T, Inc., 916 F.3d at 1032.

[Endnote 10] These Guidelines use the term “products” to encompass anything that is traded between firms and their suppliers, customers, or business partners, including physical goods, services, or access to assets. Products can be as narrow as an individual brand, a specific version of a product, or a product that includes specific ancillary services such as the right to return it without cause or delivery to the customer’s location.

[Endnote 11] Typically, a merger eliminates a competitor by bringing two market participants under common control. Similar concerns arise if the merger threatens to cause the exit of a current market participant, such as a leveraged buyout that puts the target firm at significant risk of failure.

[Endnote 12] The Agencies may instead measure market concentration using the number of significant competitors in the market. This measure is most useful when there is a gap in market share between significant competitors and smaller rivals or when it is difficult to measure shares in the relevant market.

[Endnote 13] For illustration, the HHI for a market of five equal firms is 2,000 (5 x 202 = 2,000) and for six equal firms is 1,667 (6 x 16.672 = 1667).

[Endnote 14] The change in HHI from a merger of firms with shares a and b is equal to 2ab. For example, in a merger between a firm with 20% market share and a firm with 5% market share, the change in HHI is 2 x 20 x 5 = 200.

[Endnote 15] The first merger guidelines to reference an HHI threshold were the merger guidelines issued in 1982. These guidelines referred to mergers with HHI above 1,000 as concentrated markets, with HHI between 1,000 and 1,800 as “moderately concentrated” and above 1,800 as “highly concentrated,” while they referred to an increase in HHI of 100 as a “significant increase.” Each subsequent iteration until 2010 maintained those thresholds. See Fed. Trade Comm’n & U.S. Dep’t of Justice, Horizontal Merger Guidelines § 1.51 (1997); Fed. Trade Comm’n & U.S. Dep’t of Justice, Horizontal Merger Guidelines § 1.51 (1992); U.S. Dep’t of Justice, Merger Guidelines § 3(A) (1982). During this time, courts routinely cited to the guidelines and these HHI thresholds in decisions. See, e.g., Chicago Bridge & Iron Co. N.V. v. FTC, 534 F.3d 410, 431 (5th Cir. 2008); FTC v. H.J. Heinz Co., 246 F.3d 708, 716 (D.C. Cir. 2001); FTC v. Univ. Health, Inc., 938 F.2d 1206, 1211 (11th Cir. 1991). Although the Agencies raised the thresholds for the 2010 guidelines, based on experience and evidence developed since, the Agencies consider the original HHI thresholds to better reflect both the law and the risks of competitive harm suggested by market structure and have therefore returned to those thresholds.

[Endnote 16] Phila. Nat’l Bank, 374 U.S. at 364-65 (“Without attempting to specify the smallest market share which would still be considered to threaten undue concentration, we are clear that 30% presents that threat.”).