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Consumer Reports: DOJ/FTC proposed update to Vertical Merger Guidelines needs more work, more relevance to today’s marketplace

WASHINGTON, D.C. – Consumer Reports has filed comments with the Department of Justice and Federal Trade Commission in response to a proposal to update their Enforcement Guidelines for assessing vertical mergers under the antitrust laws. These are mergers that combine two companies that operate at different levels in a supply and marketing chain, and therefore do, or could, do business with each other. The updated Vertical Merger Guidelines would replace guidelines published in 1984, before the arrival of the internet and its dramatic transformation of the marketplace. The 1984 guidelines are largely ignored in actual enforcement decision making, but they remain on the books.

CR welcomes the plan to update the guidelines as long overdue, but says the current draft needs more work.

“To be useful, updated guidelines need to be relevant, and they need to be clear,” says George Slover, senior policy counsel at Consumer Reports. “They need to speak to the challenges to competition we are facing in today’s online marketplace, and they need to be understandable to the wider public, not just antitrust economists and lawyers. Curiously, the descriptive examples used in the current draft could have been written for the marketplace as it existed decades ago, or even for the marketplace Adam Smith wrote about 250 years ago. There is not a single reference to today’s online marketplace, where a handful of giant platforms are increasingly able to control the choices that can reach consumers.

“Age-old competition concerns are being magnified and transformed by an entirely new dimension of high-tech market power, fueled by massive troves of data and awesome technological capabilities to gather, sort, and manipulate it, reaching into all corners of our commercial and personal interactions and preferences. In profound and unprecedented ways, this is fundamentally jeopardizing any ability of the online marketplace to work effectively for consumers and for those who seek to reach them,” says Slover.

“The current draft also entirely omits any discussion of potential competition. This myopic view of what’s important is even more problematic in dealing with the online marketplace. In the last decade, each of the major giant platforms has bought out dozens, even hundreds, of companies that were not directly competing with it at the time. But the platform may have spotted them on the horizon as a potential threat to its dominance and decided to co-opt that threat or nip it in the bud. Many of these acquisitions would have appeared as vertical in nature at the time, if you ignore potential competition. The updated guidelines need to speak to this.

“There is growing public awareness and concern about the loss of competition and choice in the online marketplace. To really be useful, the updated guidelines need to be written in clear language that the wider public – businesses, journalists, and those advocating for consumers – can understand without having to hire experts to explain what they mean. The current draft seems more of an initial draft of a tutorial among antitrust economists.

“The explanation – or lack of one – of what are referred to as efficiencies is a good example of the need for more clarity and more thinking. The current draft seems to assume that everyone already knows what efficiencies are, and that everyone accepts that their treatment is settled, so does not need to be explained. But it is by no means clear that a merger that harms competition should be blessed just because the merged company might also be able to cut its own costs. What is important is how the merger could alter the healthy pressures businesses are supposed to face to give consumers better products and services at lower prices. The treatment of efficiencies needs a fresh look and a clear and convincing explanation.

“The task to update the Vertical Merger Guidelines should be done right. It should not be rushed. Final guidelines should not be issued unless and until they speak to present-day marketplace conditions and concerns, in a language that can be understood. They should promote sound antitrust enforcement that appropriately protects an open marketplace and consumers who shop in it. And they should give an increasingly aware and concerned public the assurance they deserve that their government is committed to that objective,” Slover said.

The full comments to DOJ and FTC are available here.