Antitrust Policy and Vertical Mergers

by Eric S. Rosengren and James W. Meehan, Jr.
September/October1995

Recently, federal regulators responsible for enforcing the antitrust laws have shown a renewed interest in the potential anticompetitive effects of vertical mergers--mergers between two independent firms in successive stages of production. This greater activism in vertical merger cases is in striking contrast to the permissive policies that prevailed throughout the 1980s, which, in turn, were a response to the Justice Department's and the Federal Trade Commission's open hostility to vertical mergers during the 1960s and 1970s.

The cyclical antitrust treatment of vertical mergers over the past three and one-half decades has been strongly influenced by the theoretical research of academic economists and lawyers. This article examines the empirical evidence of anticompetitive foreclosure in vertical mergers challenged by the Justice Department and the Federal Trade Commission during the period from 1963 to 1982. The authors find no evidence of anticompetitive market foreclosure for the sample of vertical merger cases challenged by the antitrust agencies during this period. They suggest that a more permissive policy towards vertical mergers be maintained until the theory can spell out more clearly the circumstances when vertical mergers result in anticompetitive foreclosure.

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