80 FR 27954 - ZF Friedrichshafen AG and TRW Automotive Holdings Corp; Analysis of Proposed Consent Order To Aid Public Comment
FEDERAL TRADE COMMISSION Federal Register Volume 80, Issue 94 (May 15, 2015)
Federal Register Volume 80, Issue 94 (May 15, 2015)
| Page Range | 27954-27961 | |
| FR Document | 2015-11721 |
[Federal Register Volume 80, Number 94 (Friday, May 15, 2015)] [Notices] [Pages 27954-27961] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-11721] ======================================================================= ----------------------------------------------------------------------- FEDERAL TRADE COMMISSION [File No. 141-0235] ZF Friedrichshafen AG and TRW Automotive Holdings Corp; Analysis of Proposed Consent Order To Aid Public Comment AGENCY: Federal Trade Commission. ACTION: Proposed consent agreement. ----------------------------------------------------------------------- SUMMARY: The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the draft complaint and the terms of the consent order-- embodied in the consent agreement--that would settle these allegations. DATES: Comments must be received on or before June 5, 2015. ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/zftrwautomativeconsent online or on paper, by following the instructions in the Request for Comment part of the SUPPLEMENTARY INFORMATION section below. Write ``ZF Friedrichshafen AG's and TRW Automotive Holdings Corp.--Consent Agreement; File No. 141-0235'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/zftrwautomativeconsent by following the instructions on the web-based form. If you prefer to file your comment on paper, write ``ZF Friedrichshafen AG's and TRW Automotive Holdings Corp.--Consent Agreement; File No. 141-0235'' on your comment and on the envelope, and mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. FOR FURTHER INFORMATION CONTACT: Stephen Antonio, Bureau of Competition, (202-326-2536), 600 Pennsylvania Avenue NW., Washington, DC 20580. SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, notice is hereby given that the above-captioned consent agreement containing consent orders to cease and desist, having been filed with and accepted, subject to final approval, by the Commission, has been placed on the public record for a period of thirty (30) days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for May 5, 2015), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before June 5, 2015. Write ``ZF Friedrichshafen AG's and TRW Automotive Holdings Corp.-- Consent Agreement; File No. 141-0235'' on your comment. Your comment-- including your name and your state--will be placed on the public record of this proceeding, including, to the extent practicable, on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to remove individuals' home contact information from comments before placing them on the Commission Web site. Because your comment will be made public, you are solely responsible for making sure that your comment does not include any sensitive personal information, like anyone's Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment does not include any sensitive health information, like medical records or other individually identifiable health information. In addition, do not include any ``[t]rade secret or any commercial or financial information which . . . is privileged or confidential,'' as discussed in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do not include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names. If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and you have to follow the procedure explained in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept confidential only if the FTC General Counsel, in his or her sole discretion, grants your request in accordance with the law and the public interest. --------------------------------------------------------------------------- \1\ In particular, the written request for confidential treatment that accompanies the comment must include the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. See FTC Rule 4.9(c), 16 CFR 4.9(c). --------------------------------------------------------------------------- Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comments online. To make sure that the Commission considers your online comment, you must file it at https://ftcpublic.commentworks.com/ftc/zftrwautomativeconsent by following the instructions on the web- based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site. If you file your comment on paper, write ``ZF Friedrichshafen AG's and TRW Automotive Holdings Corp.--Consent Agreement; File No. 141- 0235'' on your comment and on the envelope, and mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. If possible, submit your paper comment to the Commission by courier or overnight service. Visit the Commission Web site at http://www.ftc.gov to read this Notice and the news release describing it. The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before June 5, 2015. For information on the Commission's privacy policy, including routine uses permitted by the Privacy Act, see http://www.ftc.gov/ftc/privacy.htm. [[Page 27955]] Analysis of Agreement Containing Consent Order To Aid Public Comment Introduction The Federal Trade Commission (``Commission'') has accepted from ZF Friedrichshafen AG (``ZF'') and TRW Automotive Holdings Corp. (``TRW''), subject to final approval, an Agreement Containing Consent Order (``Consent Agreement'') designed to remedy the anticompetitive effects resulting from ZF's proposed acquisition of TRW. Pursuant to an Agreement and Plan of Merger dated September 15, 2014, the parties agreed that ZF would acquire TRW for $105.60 per share in an all-cash deal valued at approximately $12.4 billion (``the Acquisition''). The proposed Acquisition would result in a duopoly in the heavy vehicle tie rod market. The Commission's Complaint alleges that the proposed Acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 45, by substantially lessening competition in the market for heavy vehicle tie rods in North America. Under the terms of the proposed Decision and Order (``Order'') contained in the Consent Agreement, the parties are required to divest TRW's Linkage and Suspension Business in a manner, and to an acquirer, that meets Commission approval. The divestiture package includes five manufacturing facilities in North America and Europe, along with related assets including intellectual property. The acquirer also has the option to enter into transitional services and supply agreements. The Consent Agreement provides an acquirer with everything needed to compete effectively in the North American heavy vehicle tie rod market. The parties must complete the divestiture within six months of executing the Consent Agreement. The Consent Agreement has been placed on the public record for 30 days to solicit comments from interested persons. Comments received during this period will become part of the public record. After 30 days, the Commission will again review the Consent Agreement and the comments received, and decide whether it should withdraw from the Consent Agreement, modify it, or make it final. The Parties Headquartered in Friedrichshafen, Germany, ZF is a privately held global automotive and industrial products manufacturer. ZF makes light and heavy vehicle components for the powertrain, chassis, and driveline. ZF designs, manufacturers, and sells heavy vehicle tie rods, amongst several other products, in its chassis division. Headquartered in Livonia, Michigan, TRW sells chassis systems, electronic systems, passive occupant safety systems, and other automotive components. Like ZF, TRW designs, manufactures, and sells heavy vehicle tie rods. The Relevant Product and Market Structure The relevant line of commerce in which to analyze the effects of the Acquisition is heavy vehicle tie rods. A heavy vehicle is generally defined as one that weighs six tons or more, and a tie rod is a rigid connecter that links a vehicle's individual wheels with the steering control mechanism. Customers and other market participants did not identify any substitutes for heavy vehicle tie rods. North America is the relevant geographic market in which to analyze the effects of the Acquisition on the heavy vehicle tie rod market. The size and weight of heavy vehicle tie rods generally make it uneconomical to ship them long distances. Customers interviewed primarily consider manufacturers in North America, and have found more distant firms uncompetitive for reasons including: (1) Price; (2) logistics; and (3) quality. Therefore, North America is the relevant geographic market. The market for heavy vehicle tie rods in North America is highly concentrated. It is served primarily by ZF, TRW, and USK Internacional S.A. DE C.V. (``Urresko''). These three firms have a share of nearly 99% of the market based on unit sales. The merger would reduce the number of competitors from three to two, and increase the Herfindahl- Hirschman Index from 4,218 to 5,046, an increase of 828. Entry Entry into the North American heavy vehicle tie rod market is not likely to deter or counteract any anticompetitive effects of the proposed Acquisition. Entry is unlikely in light of the relatively small market size, strong position of incumbents, high capital costs, switching costs, and knowledge barriers that exist. The parties did not identify any likely entrants, and those firms best situated for entry-- manufacturers of related heavy vehicle components--expressed no interest in entering the North American heavy vehicle tie rod market. Effects of the Acquisition The proposed Acquisition would increase the likelihood of coordinated interaction among the remaining competitors in the North American heavy vehicle tie rod market. The combined company would have only one remaining significant competitor in North America, Urresko. Reducing the number of competitors from three to two would eliminate much uncertainty and make it easier for the remaining firms to reach agreement on terms of coordination, whether the coordination focuses on customer allocation, price, or some other aspect of competition. Additionally, the proposed Acquisition would eliminate direct competition between ZF and TRW, resulting in the increased probability that customers would pay higher prices for heavy vehicle tie rods. In the past, customers have been able to use competition between ZF and TRW to obtain better prices by obtaining competing bids. Customers have also switched between ZF and TRW. That competition would be lost absent the merger. The Consent Agreement The Consent Agreement eliminates the competitive concerns raised by ZF's proposed acquisition of TRW by requiring the parties to divest TRW's North American and European Linkage and Suspension Business (``the L&S Business''). The proposed divestiture includes everything needed for an acquirer to compete effectively in the North American market for heavy vehicle tie rods, and also includes additional products that ensure the business will be viable. Given the robust nature of the divested business, the Commission is confident that a post-order divestiture is sufficient to protect its interest in restoring competition. Pursuant to the Order, the parties are required, no later than six months from execution of the Consent Agreement, to divest the L&S Business to a Commission-approved acquirer. That business consists of both heavy and light vehicle components, and includes--in addition to tie rods--control arms, ball joints, stabilizer links, conventional steering linkages, drag links, V-links, radius rods, and I-shafts. The divestiture buyer will receive all rights and assets relating to the L&S Business, including five TRW manufacturing facilities, Portland (U.S.), Tillsonburg-Plant 2 (Canada), St. Catharines (Canada), Dacice (Czech Republic), and Krefeld-Gellep (Germany), as well as leased space previously occupied by L&S research [[Page 27956]] and development at TRW's Dusseldorf Tech Center. The divested assets also include intellectual property rights as well as all books, records, and confidential business information related to the L&S Business. To ensure that the divestiture is successful, the Order requires the parties to provide transition services such as logistical and administrative support at the option of the acquirer. Moreover, the acquirer will have the option to enter into a transition supply agreement with the parties for key manufacturing inputs necessary to perform existing customer contracts. The Consent Agreement also includes other standard terms designed to ensure the viability of the divestiture, including requirements that the parties assist the acquirer in hiring the existing work force of the business, and refrain from soliciting those employees for up to two years. Given the robustness of the divested business and the protections contained in the Order, the Commission is confident that a post-order divestiture will be sufficient to preserve competition. The L&S Business has been run largely as a standalone business within TRW, and potential buyers have confirmed that the divested assets include everything necessary to compete effectively as a viable business. Similarly, potential customers have confirmed that an acquirer of the L&S Business would be a workable option as a supplier. To ensure compliance with the Order, the Commission will appoint an Interim Monitor to oversee ZF's and TRW's performance of their obligations pursuant to the Consent Agreement, and to keep the Commission informed about the status of the divestiture. The Order also allows the Commission to appoint a Divestiture Trustee to accomplish the divestiture if the parties fail to divest within the required timeframe. Lastly, the Consent Agreement contains standard reporting requirements and terminates in ten years. The Commission has also issued an Order to Hold Separate and Maintain Assets to protect the assets until they are divested. During the hold separate period, the parties must fund the business' operations, including capital projects, according to existing plans. To ensure compliance with the Hold Separate Order, a Commission-approved Hold Separate Monitor will oversee the L&S Business during the interim period. Opportunity for Public Comment The purpose of this analysis is to facilitate public comment on the Consent Agreement to aid the Commission in determining whether it should make the Consent Agreement final. This analysis is not an official interpretation of the proposed Consent Agreement and does not modify its terms in any way. By direction of the Commission, Commissioner Wright dissenting. Donald S. Clark, Secretary. Statement of the Federal Trade Commission In the Matter of ZF Friedrichshafen AG and TRW Automotive Holdings Corp. The Commission has issued a proposed complaint and consent order to address narrow competitive concerns associated with ZF Friedrichshafen AG's proposed $12.4 billion acquisition of TRW Automotive Holdings Corp.\1\ Specifically, we have reason to believe that this proposed acquisition is likely to substantially reduce competition in the manufacture and sale of heavy vehicle tie rods in North America. The proposed remedy, which involves a divestiture of TRW's linkage and suspension business in North America and Europe, addresses our competitive concerns and will bolster the viability of the divested business in the hands of a buyer, without eliminating efficiencies that otherwise might arise from the combination of the two companies. --------------------------------------------------------------------------- \1\ This statement reflects the views of Chairwoman Ramirez and Commissioners Brill, Ohlhausen, and McSweeny. --------------------------------------------------------------------------- ZF and TRW are global automotive parts manufacturers. Both companies manufacture and sell a wide variety of components for discrete systems within a motor vehicle such as the chassis, powertrain, and suspension systems. They each have production facilities located throughout the United States, Canada, and Mexico. The proposed transaction will create the second-largest global auto parts supplier. Our competitive concerns arise from a limited aspect of the proposed combination, namely, its likely effect in the market for the manufacture and sale of heavy vehicle tie rods for customers in North America. Tie rods are part of a motor vehicle's steering and linkage system; they are rigid connectors that link the wheels to the vehicle's steering control mechanism. To perform their intended function within the linkage systems of vehicles weighing six tons or more, these tie rods have to be large (approximately three to six feet long) and heavy (weighing approximately 50 pounds). This means that tie rods designed for light vehicles are not practical substitutes since they would be too small and light and therefore not as strong structurally. At the same time, tie rods designed for much heavier, industrial vehicles (like mining vehicles weighing hundreds of tons) would not be substitutes either. Because of their weight, it is not economical to ship heavy vehicle tie rods over long distances. For this reason, North American customers primarily consider manufacturers with production facilities in the United States, Canada, and Mexico and generally do not regard suppliers outside of North America as viable options for reasons of price, logistics, and quality. As a result, ZF and TRW, together with a Mexican firm, USK Internacional, S.A. de C.V. (``Urresko''), account for virtually all (99%) of the sales of heavy vehicle tie rods in North America. We estimate the market shares of ZF, TRW, and Urresko to be 23%, 18%, and 58%, respectively. Fringe competitors hold the remaining 1% market share. The parties' proposed combination will therefore reduce the number of significant competitors in the relevant market from three to two and substantially increase concentration in an already highly concentrated market.\2\ Based on this increase in concentration and current market conditions, we believe the transaction is likely to produce substantial anticompetitive effects in the relevant market, in particular, by increasing the potential for coordination. Furthermore, there is unlikely to be any entry that would alleviate our competitive concerns. The small market size, the strong position of the incumbents, switching costs, and capital and knowledge barriers, among other factors, would more than likely deter North American manufacturers of related automotive parts--the most logical candidates for entry--from expanding their product offerings to include heavy vehicle tie rods. Consequently, we have reason to believe that the proposed combination would substantially lessen competition in the relevant market and harm customers and consumers, thereby violating Section 7 of the Clayton Act. --------------------------------------------------------------------------- \2\ The proposed transaction would increase the Herfindahl- Hirschman Index (``HHI'') in the relevant market from 4,218 to 5,046. The threshold at which a market is considered ``highly concentrated'' under the Merger Guidelines is 2,500. See U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines Sec. 5.3 (2010). --------------------------------------------------------------------------- In light of the foregoing, we respectfully disagree with Commissioner Wright's assertions that we lack a ``credible basis'' on which to conclude that the merger may enhance [[Page 27957]] the risk of coordination and that our action is otherwise inconsistent with the 2010 Horizontal Merger Guidelines.\3\ Under the 2010 Guidelines, substantial increases in concentration caused by a merger rightly continue to play an important role in our merger analysis.\4\ They do so for the simple reason that highly concentrated markets are more conducive to anticompetitive outcomes than less concentrated markets.\5\ Accordingly, the lens we apply to the evidence in a merger that reduces the number of firms in a market to three or two is, and should be, different than the lens we apply to a merger that reduces the number of firms to seven or six. Where, as here, a proposed merger significantly increases concentration in an already highly concentrated market, a presumption of competitive harm is justified under both the Guidelines and well-established case law.\6\ --------------------------------------------------------------------------- \3\ Dissenting Statement of Commissioner Joshua D. Wright at 3- 4. \4\ See Carl Shapiro, The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years, 77 Antitrust L.J. 701 (2010) (``Thus, like the fox, the 2010 Guidelines embrace multiple methods. But this certainly does not mean they reject the use of market concentration to predict competitive effects, as can be seen in Sections 2.1.3 and 5.''). As Commissioner Wright acknowledges, ``The predictive power of market share and market concentration data is informed by economic theory and available empirical evidence.'' Wright Dissent at 7. \5\ See, e.g., Steven C. Salop, The Evolution and Vitality of Merger Presumptions: A Decision-Theoretic Approach 11 (Georgetown Law Faculty Publications and Other Works, Working Paper No. 1304, 2014), available at http://scholarship.law.georgetown.edu/facpub/1304 (``[V]arious theories of oligopoly conduct--both static and dynamic models of firm interaction--are consistent with the view that competition with fewer significant firms on average is associated with higher prices. . . . Accordingly, a horizontal merger reducing the number of rivals from four to three, or three to two, would be more likely to raise competitive concerns than one reducing the number from ten to nine, ceteris paribus.''); Steffen Huck, et al., Two Are Few and Four Are Many: Number Effects from Experimental Oligopolies, 53 J. Econ. Behavior & Org. 435, 443 (2004) (testing the frequency of collusive outcomes in Cournot oligopolies and finding ``clear evidence that there is a qualitative difference between two and four or more firms''); Timothy F. Bresnahan & Peter C. Reiss, Entry and Competition in Concentrated Markets, 99 J. Pol. Econ. 977, 1006 (1991) (finding, in a study of tire prices, that ``[m]arkets with three or more dealers have lower prices than monopolists or duopolists,'' and noting that, ``while prices level off between three and five dealers, they are higher than unconcentrated market prices''). \6\ See Merger Guidelines Sec. 2.1.3 (``Mergers that cause a significant increase in concentration and result in highly concentrated markets are presumed to be likely to enhance market power, but this presumption can be rebutted by persuasive evidence showing that the merger is unlikely to enhance market power.''); Chicago Bridge & Iron Co., N.V. v. FTC, 534 F.3d 410, 423 (5th Cir. 2008) (``Typically, the Government establishes a prima facie case by showing that the transaction in question will significantly increase market concentration, thereby creating a presumption that the transaction is likely to substantially lessen competition.''); FTC v. H.J. Heinz Co., 246 F.3d 708, 716 (D.C. Cir. 2001) (merger to duopoly creates a rebuttable presumption of anticompetitive harm through direct or tacit coordination). --------------------------------------------------------------------------- Despite Commissioner Wright's insistence to the contrary, our inquiry extended beyond consideration of market concentration and application of the Guidelines presumption of competitive harm. We also examined the transaction's likely anticompetitive effects, and are satisfied that there is sufficient evidence to support the issuance of our complaint and proposed consent order.\7\ As noted above, we are particularly concerned that the transaction is likely to enhance the potential for coordination.\8\ As set forth in the Guidelines, the Commission is likely to challenge a merger under a coordinated effects theory if: ``(1) The merger would significantly increase concentration and lead to a moderately or highly concentrated market; (2) that market shows signs of vulnerability to coordinated conduct [ ]; and (3) the [Commission has] a credible basis on which to conclude that the merger may enhance that vulnerability.'' \9\ We have reason to believe that all three factors are satisfied here.\10\ --------------------------------------------------------------------------- \7\ The investigation in this matter did not proceed to a full phase because the parties proposed a remedy soon after second requests had been issued. Consequently, the quantum of evidence is not the same as if the agency had completed a full-phase investigation. But that does not mean, as Commissioner Wright suggests, that we are lowering our reason-to-believe standard when a remedy is proposed during the course of an investigation. Wright Dissent at 9. We believe our complaint is well supported and meets the same reason-to-believe standard we always apply. We simply do not think it would have been appropriate to subject the parties to the added expense and delay of a full-phase investigation. It would not have been a good use of Commission resources either. \8\ Although coordinated effects is the primary basis upon which we found reason to believe that the proposed transaction violates Section 7 of the Clayton Act, we also found evidence of unilateral effects, namely, that in the past, customers have solicited competing bids from ZF and TRW to obtain better prices, and have switched between ZF and TRW as their preferred supplier. \9\ Merger Guidelines Sec. 7.1. \10\ 15 U.S.C. 45(b) (2013). --------------------------------------------------------------------------- First, as noted above, the proposed transaction results in a highly concentrated relevant market.\11\ Second, the market is susceptible to coordinated conduct, as evidenced by several recent cases of collusion in the auto parts industry.\12\ Third, by reducing the number of significant competitors to only two, the merger would decrease the impediments to reaching common terms of coordination and make it easier to monitor compliance with, and retaliate against potential deviation from, a coordinated scheme. Specifically, as remaining duopolists with nearly equal shares (41% and 58%, respectively), the combined firm and Urresko would have greater incentives to take advantage of a market with relatively few customers that purchase homogeneous products through individual purchase orders rather than long-term supply contracts. They would also find it easier to divide customers and monitor their allocations. --------------------------------------------------------------------------- \11\ See Shapiro, supra note 4, at 708 (``In particular, as the revised Guidelines explain, the Agencies place considerable weight on HHI measures in cases involving coordinated effects.''). \12\ Among the Antitrust Division's recent prosecutions of companies and individuals in the automotive parts industry for price-fixing and bid-rigging is an indictment involving TRW in an alleged conspiracy for seat belts, air bags, and steering wheels. See Plea Agmt., United States v. TRW Deutschland Holding GMBH, Crim. No. 12-20491 (E.D. Mich. Sept. 25, 2012), available at http://www.justice.gov/atr/cases/f287600/287657.pdf. See generally Merger Guidelines Sec. 7.2 (``Previous collusion or attempted collusion in another product market may also be given substantial weight if the salient characteristics of that other market at the time of the collusion are closely comparable to those in the relevant market.''). --------------------------------------------------------------------------- Our concern that the merger may enhance the relevant market's vulnerability to coordination is backed by the well-accepted view that markets with only two or three firms are more conducive to anticompetitive outcomes than markets with four or more firms.\13\ The proposed merger would eliminate a third competitor and create greater symmetry between the two remaining firms. --------------------------------------------------------------------------- \13\ See Salop; Huck et al.; Bresnahan & Reiss, supra note 5. --------------------------------------------------------------------------- Additionally, there is no evidence that fringe competitors, which have higher prices, or new entrants, which are unlikely to materialize, could disrupt any coordination between the combined firm and Urresko. For these reasons, we have ample basis to conclude that the merger may enhance the vulnerability to coordinated effects that already exists in the relevant market.\14\ --------------------------------------------------------------------------- \14\ See Merger Guidelines Sec. 7.1 (recognizing that ``the risk that a merger will induce adverse coordinated effects may not be susceptible to quantification or detailed proof''). The Guidelines contemplate that the third factor can be satisfied in several ways; as Commissioner Wright himself notes, an acquisition of a maverick firm is but ``one illustrative example of the type of evidence that would satisfy this third condition.'' Wright Dissent at 3. --------------------------------------------------------------------------- As we noted above, the parties have chosen to address our limited competitive concerns in the heavy vehicle tie rods market through a proposal to divest TRW's linkage and suspension business in North America and Europe. This allows the parties to address our competition concerns, as well as those of the European Commission. The EC has already [[Page 27958]] accepted the proposed settlement and ordered the divestiture of the European assets.\15\ Furthermore, there is no evidence that the divestiture of TRW's linkage and suspension business would eliminate any efficiencies that otherwise might result from the parties' proposed combination. --------------------------------------------------------------------------- \15\ See Press Release, European Commission, Mergers: Commission Clears Acquisition of Automotive Components Manufacturer TRW by Rival ZF, Subject to Conditions (Mar. 12, 2015), available at http://europa.eu/rapid/press-release_IP-15-4600_en.htm. --------------------------------------------------------------------------- In sum, because we have reason to believe that customers and consumers are likely to suffer a substantial loss of competition as a result of the proposed transaction, and there are no demonstrated countervailing efficiencies, we believe the public interest is best served by accepting the proposed consent order to remedy our competitive concerns. Separate Statement of Commissioner Maureen K. Ohlhausen ZF Friedrichshafen AG/TRW Automotive Holdings Corp. I voted in favor of issuing for public comment the proposed consent agreement in this matter. As discussed below, there is sufficient evidence to provide me with a reason to believe that, absent a remedy, the transaction is likely to violate Section 7 of the Clayton Act. I also find that the proposed consent, which is intended to remedy any such violation, is in the public interest. Based on the evidence presented to me--including the evidence discussed in the Analysis to Aid Public Comment and the majority statement in this matter--I am satisfied that the ``reason to believe'' prong that the Commission must assess in issuing a complaint, including in the consent context, is met here. It is important to note that the Commission makes the reason to believe determination before a full evidentiary and legal record is developed during a trial on the merits, which suggests that the standard must necessarily be lower than what the Commission or a court should apply for finding ultimate liability. Individual Commissioners, of course, have different views on how much evidence is necessary to satisfy the reason to believe standard. Unfortunately, there does not appear to be a consensus view on what the standard requires. I respect Commissioner Wright's view that the standard was not met for him in this case. For the reasons identified in the majority statement in this matter, I determined that there is a credible basis on which to conclude that this merger may enhance the vulnerability to coordinated effects that already exists in the relevant market at issue.\1\ --------------------------------------------------------------------------- \1\ See 2010 Horizontal Merger Guidelines Sec. 7.1. --------------------------------------------------------------------------- I further view this consent to be in the public interest. In my time as a Commissioner, I have advocated for transparency, predictability, and fairness across a variety of settings.\2\ Those three critical goals apply equally to the merger context. A practical problem in our merger review process arises, however, where investigations are cut short by the merging parties, which, for business, strategic, or other reasons, offer staff and then ultimately the Commission a proposed remedy in lieu of responding to a Second Request or other compulsory process. In such cases, the available evidence may be sufficient to provide reason to believe the proposed transaction would violate Section 7, but a full investigation might (or might not) reveal additional evidence sufficient to counterbalance the available evidence and support closing the investigation altogether. In that situation, the goals of predictability and fairness counsel against forcing merging parties (and Commission staff) to incur the significant costs associated with a full-phase investigation. Merging parties also expend non-trivial amounts of time and money in developing and then proposing remedies to FTC staff; those good-faith efforts-- particularly ones that involve coordination of remedies across antitrust jurisdictions--should not be discounted. The public interest analysis thus should take into account the need for predictability and fairness for merging parties in these circumstances. --------------------------------------------------------------------------- \2\ Those settings have included the use of disgorgement in competition cases, the proper scope of our standalone Section 5 authority, the intersection of intellectual property and antitrust, and the treatment of U.S. businesses by foreign antitrust jurisdictions. See, e.g., Dissenting Statement of Commissioner Maureen K. Ohlhausen, In re Cardinal Health, Inc., FTC File No. 101- 0006 (Apr. 17, 2015), available at https://www.ftc.gov/public-statements/2015/04/dissenting-statement-commissioner-maureen-k-ohlhausen-cardinal-health-inc (dissenting from consent involving disgorgement of profits for alleged Section 2 violation); Maureen K. Ohlhausen, Section 5 of the FTC Act: Principles of Navigation, 2 J. Antitrust Enforcement 1 (2014), available at http://www.ftc.gov/public-statements/2013/10/section-5-ftc-act-principles-navigation-0 (advocating for additional guidance on the FTC's use of its standalone Section 5 authority); Dissenting Statement of Commissioner Maureen K. Ohlhausen, In re Motorola Mobility LLC & Google, Inc., FTC File No. 121-0120 (Jan. 3, 2013), available at https://www.ftc.gov/public-statements/2013/01/statement-commissioner-maureen-ohlhausen-0 (dissenting from consent involving standalone Section 5 claim against holder of standard-essential patents); Testimony of Commissioner Maureen K. Ohlhausen, ``The Foreign Investment Climate in China: U.S. Administration Perspectives on the Foreign Investment Climate in China,'' before the U.S.-China Economic and Security Review Commission (Jan. 28, 2015), available at https://www.ftc.gov/public-statements/2015/01/testimony-commissioner-maureen-k-ohlhausen-hearing-foreign-investment (discussing importance of foreign antitrust jurisdictions pursuing the goals of predictability, transparency, and fairness). --------------------------------------------------------------------------- Dissenting Statement of Commissioner Joshua D. Wright In the Matter of ZF Friedrichshafen AG and TRW Automotive Holdings Corp. The Commission has voted to issue a Complaint and Decision & Order against ZF Friedrichshafen AG (``ZF'') to remedy the allegedly anticompetitive effects of ZF's proposed acquisition of TRW Automotive Holdings Corp. (``TRW''). I respectfully dissent because the evidence is insufficient to provide reason to believe ZF's acquisition will substantially lessen competition for heavy vehicle tie rods sold in North America. In particular, I believe the Commission has not met its burden to show that the acquisition will result in an increased likelihood of harm from coordinated effects or from unilateral effects. As a consequence, the Commission should close the investigation and allow the parties to complete the proposed transaction without imposing a remedy. I write separately today to explain my vote and to discuss the quality and quantity of evidence necessary to support a coordinated and unilateral effects challenge under the 2010 Horizontal Merger Guidelines (``Merger Guidelines''). The Complaint alleges the proposed transaction increases the likelihood of coordinated effects and unilateral effects in the market for heavy vehicle tie rods sold in North America.\1\ After the proposed transaction, ZF and TRW would have a combined 41% share. The remaining competitor, Urresko, has a 58% share. Fringe suppliers have a 1% share. --------------------------------------------------------------------------- \1\ Compl. ] 12, ZF Friedrichshafen AG, FTC File No. 141-0235 (May 5, 2015). --------------------------------------------------------------------------- I. Coordinated Effects Are Unlikely in the Relevant Market The Complaint implicates an important question with regard to coordinated effects: What evidence is necessary to establish reason to believe a proposed transaction may substantially lessen competition by ``enabling or encouraging post-merger coordinated interaction among firms in the relevant market that harms customers.'' \2\ --------------------------------------------------------------------------- \2\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines Sec. 7 (2010) [hereinafter Merger Guidelines]. --------------------------------------------------------------------------- [[Page 27959]] The Merger Guidelines offer three conditions that, if satisfied, suggest the agency is likely to challenge a merger upon the basis that it will result in an increased likelihood of competitive harm from coordination. The Merger Guidelines specify that the agencies are likely to challenge a merger if: (1) ``the merger would significantly increase concentration and lead to a moderately or highly concentrated market;'' \3\ (2) the ``market shows signs of vulnerability to coordinated conduct;'' \4\ and (3) ``the Agencies have a credible basis on which to conclude that the merger may enhance that vulnerability.'' \5\ --------------------------------------------------------------------------- \3\ Id. Sec. 7.1. \4\ Id. \5\ Id. --------------------------------------------------------------------------- The second and third conditions are at issue here and worthy of further discussion. The record evidence is mixed with respect to the second condition, whether the market shows signs of vulnerability to coordinated conduct. Evidence that the market is generally conducive to coordinated interaction includes the fact that heavy vehicle tie rods are fairly homogeneous goods and are purchased using relatively short-term contracts. Also potentially germane to assessing the vulnerability of the relevant market to coordinated conduct are previous episodes of coordination by the same players in different markets. In 2012, a German subsidiary of TRW Automotive, TRW Deutschland Holding GmbH, pled guilty to a conspiracy to fix prices of seatbelts, airbags, and steering wheels sold to two German automobile customers for vehicles manufactured or sold in the United States.\6\ While this prior episode does not involve the same relevant product or geographic markets as the current matter, it might suggest some vulnerability to coordination.\7\ --------------------------------------------------------------------------- \6\ Plea Agreement ] 4(e)-(f), United States v. TRW Deutschland Holding GmbH, No. 2:12-cr-20491-GCS-PJK (E.D. Mich. Sept. 25, 2012). \7\ The Merger Guidelines state that ``The Agencies presume that market conditions are conducive to coordinated interaction if firms representing a substantial share in the relevant market appear to have previously engaged in express collusion affecting the relevant market,'' but that prior ``express collusion in another geographic market will have the same weight if the salient characteristics of that other market at the time of the collusion are comparable to those in the relevant market,'' and that prior collusion ``in another product market may also be given substantial weight if the salient characteristics of that other market at the time of the collusion are closely comparable to those in the relevant market.'' Merger Guidelines, supra note 2, Sec. 7.2. Thus, I am comfortable with concluding the prior TRW Deutschland price-fixing case is material to our investigation, and that this evidence increases the likelihood of coordination, all things equal. However, without a more detailed assessment of any logical connection between the markets where collusion actually took place and the relevant market here, I am hesitant to give this factor alone substantial weight given observable differences between the markets. For instance, in the markets at issue in that case, the bidding process appeared to be more formal with longer commitments. See Information ] 8, United States v. TRW Deutschland Holding GmbH, No. 2:12-cr-20491-GCS-PJK (E.D. Mich. July 30, 2012). --------------------------------------------------------------------------- There are other considerations, however, that indicate the market for heavy vehicle tie rods is not particularly vulnerable to coordination. First, while the product might be fairly homogeneous, there are significant switching costs including the time and cost involved with validation testing of the new supplier's tie rods. All else equal, significant switching costs make markets less vulnerable to coordination because they diminish firms' ability to punish effectively deviations from the coordinated price. Second, cost and demand fluctuations appear to be relatively frequent and large, which increase the information costs needed to detect accurately deviations.\8\ Third, Urresko is a relatively recent entrant and has become the largest supplier in the market. These types of disruptive market events are generally not conducive to successful coordinated interactions. Finally, there are a number of large buyers, which can result in dramatic market share swings if a supplier loses the majority of a buyer's business. While the record evidence with respect to vulnerability of the relevant market is certainly mixed at best, it would not be unreasonable to find the second prong in the Merger Guidelines satisfied. --------------------------------------------------------------------------- \8\ For instance, the primary input to produce heavy vehicle tie rods is steel. Looking at the producer price index for steel mill products, the average annual price change over the past ten years is 1.6% with a standard deviation of 6.6%. Some of the specific yearly changes are substantial, e.g., -8.6%, 7.5%, 9.1%, 12.8%. Producer Price Index--Metals and Metal Products, U.S. Bureau of Labor Statistics, http://www.bls.gov/regions/mid-atlantic/data/ProducerPriceIndexMetals_US_Table.htm (last visited May 8, 2015). --------------------------------------------------------------------------- Ultimately, however, I do not have reason to believe the proposed transaction is likely to result in coordinated effects because the record evidence does not satisfy the third condition--that is, there is no ``credible basis on which to conclude that the merger may enhance'' any pre-merger vulnerability to coordination. The Merger Guidelines provide the acquisition of a maverick firm as one illustrative example of the type of evidence that would satisfy this third condition. There is no evidence that either ZF or TRW is a maverick firm as contemplated by the Merger Guidelines. The sole evidence offered in favor of the proposition that the proposed transaction will enhance the market's vulnerability to coordination is that the merger will reduce the number of firms in the relevant market from three to two. I do not agree that a reduction of firms from three to two, without more, is enough to provide ``a credible basis to conclude that the merger may enhance that vulnerability.'' The observation that a market with N firms will, after the merger, have N-1 firms, is simply insufficient without more to establish the required credible basis under the Merger Guidelines. This is true even when a merger reduces the number of firms from three to two. The Commission offers no explanation as to why the Merger Guidelines would go through the trouble of requiring a credible basis to believe a merger will change the market's competitive dynamics that enhances the market's vulnerability to coordinated conduct, in addition to an increase in market concentration, in order to substantiate a coordinated effects merger challenge if the latter were considered sufficient to satisfy both elements.\9\ --------------------------------------------------------------------------- \9\ The Commission cites Carl Shapiro to support the proposition that market concentration is relevant to coordinated effects analysis. See Statement of the Federal Trade Commission 2 n.4, ZF Friedrichshafen AG, FTC File No. 141-0235 (May 8, 2015) (quoting Carl Shapiro, The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years, 77 Antitrust L.J. 701, 708 (2010) (``In particular, as the revised Guidelines explain, the Agencies place considerable weight on HHI measures in cases involving coordinated effects.'')). I agree. The 2010 Merger Guidelines establish market concentration as one of three conditions that must be satisfied to find coordinated effects. What Shapiro does not state, and the proposition the Commission does not otherwise substantiate, is that evidence of changes in market concentration is sufficient to satisfy the third condition along with the first. --------------------------------------------------------------------------- As I have stated previously, ``there is no basis in modern economics to conclude with any modicum of reliability that increased concentration--without more--will increase post-merger incentives to coordinate. Thus, the Merger Guidelines require the federal antitrust agencies to develop additional evidence that supports the theory of coordination and, in particular, an inference that the merger increases incentives to coordinate.'' \10\ Janusz Ordover, in a leading treatment of the economics of coordinated effects, similarly explains that ``It is now well understood that it is not sufficient when gauging the likelihood of coordinated effects from a merger to simply observe that because the merger reduces the number of firms, it automatically lessens the coordination problem facing the firms and enhances [[Page 27960]] their incentives to engage in tacit collusion; far from it.'' \11\ The required additional evidence needed to satisfy the third condition is absent in this case. --------------------------------------------------------------------------- \10\ Dissenting Statement of Commissioner Joshua D. Wright 3, Fidelity National Financial, Inc., FTC File No. 131-0159 (Dec. 23, 2013). \11\ Janusz A. Ordover, Coordinated Effects, in 2 Issues in Competition Law and Policy 1359, 1367 (ABA Section of Antitrust Law 2008) (``It is quite clear . . . that a reduction in the number of firms and concomitant increases in concentration do not necessarily make collusion inevitable or even more likely, stable, or complete.''). --------------------------------------------------------------------------- II. Unilateral Effects Are Unlikely in the Relevant Market The sole evidence offered in favor of the Commission's allegation that the merger will render unilateral price effects likely is that some customers have used the competition between ZF and TRW to obtain better pricing and some customers have switched between the two suppliers.\12\ While this is certainly material to our inquiry, this is a thin reed, without more, upon which to base a unilateral price effects case. There is no information on price effects. Moreover, there is no substantial evidence on the record with respect to the role the market leader, Urresko, plays in disciplining prices. The fact that Urresko is a recent entrant and has become the market leader in a relatively short period of time also renders dubious the proposition that barriers to entry in the relevant market are adequate to sustain a post-merger price increase. Additionally, even with sufficient barriers, Urresko's rapid growth undermines significantly any unilateral effects argument and suggests a post-merger price increase from a merged ZF-TRW would be fragile and potentially unsuccessful. The Merger Guidelines contemplate the possibility of intense competition in markets with small numbers of firms, observing that ``Even a highly concentrated market can be very competitive if market shares fluctuate substantially over short periods of time in response to changes in competitive offerings.'' \13\ --------------------------------------------------------------------------- \12\ See Analysis of Agreement Containing Consent Order to Aid Public Comment 2, ZF Friedrichshafen AG, FTC File No. 141-0235 (May 5, 2015). \13\ Merger Guidelines Sec. 5.3, supra note 2. --------------------------------------------------------------------------- Moreover, unilateral effects in a homogeneous goods market principally involve reductions in output.\14\ In order to be profitable, the reduction in output must not be met by a sufficient supply response by rivals. Thus, absent meaningful capacity constraints, unilateral effects are less likely in homogeneous goods markets. I have seen no evidence that Urresko is capacity constrained. --------------------------------------------------------------------------- \14\ See id. Sec. 6.3. --------------------------------------------------------------------------- III. Conclusion The Commission insists that a different ``lens'' should be used to evaluate evidence in markets where the number of firms is reduced by merger to three or two.\15\ The Commission cites in support of its structural theory and presumption three academic articles written by economists.\16\ Only two offer economic evidence and the proffered substantiation fails to support the claim. The first is an important early entrant into the static entry literature examining the relationship between market size and the number of entrants in a market, focusing upon isolated rural markets.\17\ It strains credulity to argue that Bresnahan and Reiss's important analysis of the impact of entry in markets involving doctors, dentists, druggists, plumbers, and tire dealers in local and isolated areas, where they find the competitive benefits of a second competitor are especially important, apply with generality sufficient to support a widely applicable presumption of harm based upon the number of firms. Indeed, the authors warn against precisely this interpretation of their work.\18\ --------------------------------------------------------------------------- \15\ See Statement of the Federal Trade Commission, supra note 9, at 2. \16\ Id. at 2 n.5. \17\ Timothy F. Bresnahan & Peter C. Reiss, Entry and Competition in Concentrated Markets, 99 J. Pol. Econ. 977 (1991). While Bresnahan and Reiss is an important early contribution to the static entry literature, it cannot possibly bear the burden the Commission wishes to place upon it. Abstracting from the complexities of market definition was necessary for the researchers to isolate entry decisions. This is possible when studying the effects of entry by a second dentist in a town with a population of less than 1,000, but not in most real-world antitrust applications. The authors of the study make this point themselves, noting that ``whether this pattern appears in other industries remains an open question.'' Id. at 1007. \18\ In earlier research using similar empirical techniques and data--namely, small rural markets--Bresnahan and Reiss plainly reject the notion that the findings should inform views of market structure and competition generally: ``We do not believe that these markets `stand in' for highly concentrated industries in the sectors of the economy where competition is national or global.'' Timothy F. Bresnahan & Peter C. Reiss, Do Entry Conditions Vary Across Markets, 3 Brookings Papers Econ. Activity 833, 868 (1987). --------------------------------------------------------------------------- The second is a laboratory experiment and does not involve the behavior of actual firms and certainly cannot provide sufficient economic evidence to support a presumption that four-to-three and three-to-two mergers in real-world markets will result in anticompetitive coordination.\19\ Once again, the authors warn against such an interpretation.\20\ --------------------------------------------------------------------------- \19\ Steffen Huck et al., Two Are Few and Four Are Many: Number Effects from Experimental Oligopolies, 53 J. Econ. Behavior & Org. 435 (2004). \20\ Id. at 436 (``The number of firms is not the only factor affecting competition in experimental markets. This implies that there exists no unique number of firms that determines a definite borderline between non-cooperative and collusive markets irrespective of all institutional and structural details of the experimental markets.''). --------------------------------------------------------------------------- Finally, the Commission cites a draft article, authored by Steve Salop, in support of its view that economic evidence supports a presumption that four-to-three and three-to-two mergers are competitively suspect.\21\ The article does not purport to study or provide new economic evidence on the relationship between market structure and competition. Thus, it cannot support the Commission's proposition.\22\ In sum, there is simply no empirical economic evidence sufficient to warrant a presumption that anticompetitive coordination is likely to result from four-to-three or three-to-two mergers. --------------------------------------------------------------------------- \21\ Steven C. Salop, The Evolution and Vitality of Merger Presumptions: A Decision-Theoretic Approach (Georgetown Law Faculty Publications and Other Works, Working Paper No. 1304, 2014), available at http://scholarship.law.georgetown.edu/facpub/1304/. \22\ Nevertheless, to the extent Salop argues in favor of legal presumptions in merger analysis, he clarifies that they ``obviously should be based on valid economic analysis, that is, proper economic presumptions,'' which should be updated ``based on new or additional economic factors besides market shares and concentration.'' Id. at 37, 48. I agree. Additionally, Salop explains that ``[c]ontemporary economic learning suggests that concentration be considered when undertaking competitive effects analysis--in conjunction with other factors suggested by the competitive effects theory--but not treated as the sole determinant of post-merger pricing.'' Id. at 13-14. Notably, Salop does not endorse a distinction between four-to-three mergers or three-to-two mergers and mergers in less concentrated markets that justifies a presumption that the former are anticompetitive; rather, he merely observes that empirical evidence and economic theory do not warrant ``ignoring market shares and concentration in merger analysis.'' Id. at 12 (emphasis in original). --------------------------------------------------------------------------- It is important to note that the Commission and I have no disagreement over the proposition that the number of competitors within a market is a relevant fact to assess the likely competitive effects of a transaction. The relevant question is not whether the number of firms matters but how much it matters--and in particular, whether a movement to three or two firms warrants a generally applicable presumption that a transaction is more likely than not to harm competition. I do not believe it does. The Commission disagrees. The Merger Guidelines make clear that the purpose of market concentration and market shares associated thresholds ``is not to provide a rigid screen to separate competitive benign mergers from anticompetitive ones, although high levels of concentration do raise concerns.'' \23\ [[Page 27961]] Rather concentration is but one aspect of the inquiry aimed at better understanding post-merger incentives to compete. The predictive power of market share and market concentration data is informed by economic theory and available empirical evidence. There is no empirical evidence sufficient to establish a generally applicable presumption that mergers that reduce the number of firms to three or two are likely to harm competition.\24\ Further, the Commission's reliance upon such shorthand structural presumptions untethered from empirical evidence subsidize a shift away from the more rigorous and reliable economic tools embraced by the Merger Guidelines in favor of convenient but obsolete and less reliable economic analysis. --------------------------------------------------------------------------- \23\ Merger Guidelines, supra note 2, Sec. 5.3. \24\ See Statement of Commissioner Joshua D. Wright 3-5, Holcim Ltd., FTC File No. 141-0129 (May 8, 2015). --------------------------------------------------------------------------- This is not to say that evidence of changes in market structure cannot ever warrant such a presumption. It does when the evidence warrants as much. The Commission has in certain contexts found reason to believe competition would be substantially lessened based simply upon a reduction of firms in the relevant market. See Actavis plc- Forest Laboratories \25\ and also Akorn-Hi-Tech Pharmacal,\26\ which both involve generic pharmaceutical markets. The Commission was able to draw conclusions about the relationship between price and the number of firms in generic pharmaceutical markets because substantial research has been done to establish that such a relationship exists.\27\ Indeed, the cases in the pharmaceutical industry are the exceptions that prove the rule that the Commission needs to do more than count the number of firms in a market to have reason to believe a substantial lessening of competition is likely. No such research has been done in this market. Accordingly, unlike in generic pharmaceutical markets, we have no evidence to conclude that a simple reduction in the number of firms in this market is likely to lead to higher prices and lower output. Simply assuming such a relationship exists in this market without any evidence to suggest that it does harkens back to the bad old days of the first half of the 20th century, when the structure-conduct-performance paradigm was in vogue. --------------------------------------------------------------------------- \25\ Analysis of Agreement Containing Consent Orders to Aid Public Comment 2, Actavis plc, FTC File No. 141-0098 (June 30, 2014) (``In generic pharmaceutical product markets, price generally decreases as the number of generic competitors increases. Accordingly, the reduction in the number of suppliers within each relevant market would likely have a direct and substantial anticompetitive effect on pricing.''). \26\ Analysis of Agreement Containing Consent Orders to Aid Public Comment 3, Akorn Enterprises, Inc., FTC File No. 131-0221 (Apr. 14, 2014) (``In generic pharmaceuticals markets, price is heavily influenced by the number of participants with sufficient supply.''). \27\ See David Reiffen & Michael R. Ward, Generic Drug Industry Dynamics, 87 Rev. Econ. & Stat. 37 (2005). As an aside, given that we are now ten years removed from the publication of this important study and over twenty years removed from the sample period, it might be worth revisiting this question with fresher data if the Commission intends to continue relying upon inferences of competitive harm from market structure in the generic pharmaceutical market. --------------------------------------------------------------------------- To summarize, there are three-to-two mergers that give rise to unilateral effects, and three-to-two mergers that give rise to coordinated effects. It is our burden to show that this three-to-two merger is likely anticompetitive. The Commission must find sufficient evidence to support an inference of likely economic harm to consumers. The heavy degree of reliance upon a structural presumption in this case is not sufficient to do so. Finally, the Commission and Commissioner Ohlhausen each claim that the quantity, and presumably the quality, of the evidence is not the same for investigations truncated by remedy proposals compared to cases where a full phase investigation is completed or compared to a completed trial, respectively.\28\ While this observation is an accurate description of the pragmatic reality of conducting law enforcement investigations, I do not agree with the implication that the quantum and quality of evidence needed to satisfy the ``reason to believe'' standard should turn on whether and when a remedy proposal is offered during an investigation. The idea is that we should ``take into account the need for predictability and fairness for merging parties in these circumstances'' \29\ and considerations whether it is ``appropriate to subject the parties to the added expense and delay of a full phase investigation.'' \30\ I fully support the agency identifying opportunities to lower the administrative costs of antitrust investigations and believe there to be ample opportunity to do so. But attempts to operate a more efficient law enforcement system must satisfy the constraint, required by law, that there is reason to believe a transaction violates Section 7 of the Clayton Act. That standard sets a relatively low bar for the minimum level of evidence required to substantiate a merger challenge. I reject the view that it should be a standard that should be relaxed because the merging parties offer a remedy.\31\ The Commission is primarily a law enforcement agency, albeit one that largely conducts it business by entering into consents with merging parties. Making the consent process more efficient and predictable is a laudable goal; but we must not allow pursuit of a more efficient consent process to distort our evaluation of the substantive merits. To do so, as in my view we have here, risks in the long run reducing the institutional capital of the agency in magnitudes far greater than any potential cost savings from truncating an investigation. --------------------------------------------------------------------------- \28\ See Statement of the Federal Trade Commission, supra note 9, at 3 n.7; see also Separate Statement of Commissioner Maureen K. Ohlhausen 1, ZF Friedrichshafen AG, FTC File No. 141-0235 (May 8, 2015). \29\ Separate Statement of Commissioner Maureen K. Ohlhausen, supra note 28, at 2. \30\ Statement of the Federal Trade Commission, supra note 9, at 3 n.7. \31\ That said, as I stated in Holcim Ltd., I am not suggesting the ``reason to believe'' standard ``requires access to every piece of relevant information and a full and complete economic analysis of a proposed transaction, regardless of whether the parties wish to propose divestitures before complying with a Second Request.'' See Statement of Commissioner Joshua D. Wright, supra note 24, at 11. --------------------------------------------------------------------------- For these reasons, I cannot join my colleagues in supporting the consent order because I do not have reason to believe the transaction violates Section 7 of the Clayton Act nor that a consent ordering divestiture is in the public interest. [FR Doc. 2015-11721 Filed 5-14-15; 8:45 am] BILLING CODE 6750-01-P
![27954 Federal Register / Vol. 80, No. 94 / Friday, May 15, 2015 / Notices
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![Federal Register / Vol. 80, No. 94 / Friday, May 15, 2015 / Notices 27957
the risk of coordination and that our Despite Commissioner Wright’s number of significant competitors to
action is otherwise inconsistent with the insistence to the contrary, our inquiry only two, the merger would decrease the
2010 Horizontal Merger Guidelines.3 extended beyond consideration of impediments to reaching common terms
Under the 2010 Guidelines, substantial market concentration and application of of coordination and make it easier to
increases in concentration caused by a the Guidelines presumption of monitor compliance with, and retaliate
merger rightly continue to play an competitive harm. We also examined against potential deviation from, a
important role in our merger analysis.4 the transaction’s likely anticompetitive coordinated scheme. Specifically, as
They do so for the simple reason that effects, and are satisfied that there is remaining duopolists with nearly equal
highly concentrated markets are more sufficient evidence to support the shares (41% and 58%, respectively), the
conducive to anticompetitive outcomes issuance of our complaint and proposed combined firm and Urresko would have
than less concentrated markets.5 consent order.7 As noted above, we are greater incentives to take advantage of a
Accordingly, the lens we apply to the particularly concerned that the market with relatively few customers
evidence in a merger that reduces the transaction is likely to enhance the that purchase homogeneous products
number of firms in a market to three or potential for coordination.8 As set forth through individual purchase orders
two is, and should be, different than the in the Guidelines, the Commission is rather than long-term supply contracts.
lens we apply to a merger that reduces likely to challenge a merger under a They would also find it easier to divide
the number of firms to seven or six. coordinated effects theory if: ‘‘(1) The customers and monitor their allocations.
Where, as here, a proposed merger merger would significantly increase Our concern that the merger may
significantly increases concentration in concentration and lead to a moderately enhance the relevant market’s
an already highly concentrated market, or highly concentrated market; (2) that vulnerability to coordination is backed
a presumption of competitive harm is market shows signs of vulnerability to by the well-accepted view that markets
justified under both the Guidelines and coordinated conduct [ ]; and (3) the with only two or three firms are more
well-established case law.6 [Commission has] a credible basis on conducive to anticompetitive outcomes
which to conclude that the merger may than markets with four or more firms.13
3 Dissenting Statement of Commissioner Joshua D.
enhance that vulnerability.’’ 9 We have The proposed merger would eliminate a
Wright at 3–4. reason to believe that all three factors third competitor and create greater
4 See Carl Shapiro, The 2010 Horizontal Merger
are satisfied here.10 symmetry between the two remaining
Guidelines: From Hedgehog to Fox in Forty Years,
77 Antitrust L.J. 701 (2010) (‘‘Thus, like the fox, the First, as noted above, the proposed firms.
2010 Guidelines embrace multiple methods. But transaction results in a highly Additionally, there is no evidence
this certainly does not mean they reject the use of concentrated relevant market.11 Second, that fringe competitors, which have
market concentration to predict competitive effects, the market is susceptible to coordinated higher prices, or new entrants, which
as can be seen in Sections 2.1.3 and 5.’’). As
Commissioner Wright acknowledges, ‘‘The conduct, as evidenced by several recent are unlikely to materialize, could
predictive power of market share and market cases of collusion in the auto parts disrupt any coordination between the
concentration data is informed by economic theory industry.12 Third, by reducing the combined firm and Urresko. For these
and available empirical evidence.’’ Wright Dissent reasons, we have ample basis to
at 7. conclude that the merger may enhance
5 See, e.g., Steven C. Salop, The Evolution and
the transaction is likely to substantially lessen
Vitality of Merger Presumptions: A Decision-
competition.’’); FTC v. H.J. Heinz Co., 246 F.3d 708, the vulnerability to coordinated effects
716 (D.C. Cir. 2001) (merger to duopoly creates a that already exists in the relevant
Theoretic Approach 11 (Georgetown Law Faculty rebuttable presumption of anticompetitive harm
Publications and Other Works, Working Paper No. through direct or tacit coordination). market.14
1304, 2014), available at http:// 7 The investigation in this matter did not proceed As we noted above, the parties have
scholarship.law.georgetown.edu/facpub/1304
(‘‘[V]arious theories of oligopoly conduct—both
to a full phase because the parties proposed a chosen to address our limited
remedy soon after second requests had been issued. competitive concerns in the heavy
static and dynamic models of firm interaction—are
Consequently, the quantum of evidence is not the
consistent with the view that competition with
same as if the agency had completed a full-phase
vehicle tie rods market through a
fewer significant firms on average is associated with proposal to divest TRW’s linkage and
investigation. But that does not mean, as
higher prices. . . . Accordingly, a horizontal merger
reducing the number of rivals from four to three,
Commissioner Wright suggests, that we are suspension business in North America
lowering our reason-to-believe standard when a and Europe. This allows the parties to
or three to two, would be more likely to raise
remedy is proposed during the course of an
competitive concerns than one reducing the number
investigation. Wright Dissent at 9. We believe our
address our competition concerns, as
from ten to nine, ceteris paribus.’’); Steffen Huck, well as those of the European
complaint is well supported and meets the same
et al., Two Are Few and Four Are Many: Number
Effects from Experimental Oligopolies, 53 J. Econ.
reason-to-believe standard we always apply. We Commission. The EC has already
simply do not think it would have been appropriate
Behavior & Org. 435, 443 (2004) (testing the
to subject the parties to the added expense and steering wheels. See Plea Agmt., United States v.
frequency of collusive outcomes in Cournot
delay of a full-phase investigation. It would not TRW Deutschland Holding GMBH, Crim. No. 12–
oligopolies and finding ‘‘clear evidence that there
have been a good use of Commission resources 20491 (E.D. Mich. Sept. 25, 2012), available at
is a qualitative difference between two and four or
either. http://www.justice.gov/atr/cases/f287600/
more firms’’); Timothy F. Bresnahan & Peter C. 8 Although coordinated effects is the primary
Reiss, Entry and Competition in Concentrated 287657.pdf. See generally Merger Guidelines § 7.2
Markets, 99 J. Pol. Econ. 977, 1006 (1991) (finding, basis upon which we found reason to believe that (‘‘Previous collusion or attempted collusion in
in a study of tire prices, that ‘‘[m]arkets with three the proposed transaction violates Section 7 of the another product market may also be given
or more dealers have lower prices than monopolists Clayton Act, we also found evidence of unilateral substantial weight if the salient characteristics of
or duopolists,’’ and noting that, ‘‘while prices level effects, namely, that in the past, customers have that other market at the time of the collusion are
off between three and five dealers, they are higher solicited competing bids from ZF and TRW to closely comparable to those in the relevant
than unconcentrated market prices’’). obtain better prices, and have switched between ZF market.’’).
6 See Merger Guidelines § 2.1.3 (‘‘Mergers that and TRW as their preferred supplier. 13 See Salop; Huck et al.; Bresnahan & Reiss,
9 Merger Guidelines § 7.1.
cause a significant increase in concentration and supra note 5.
10 15 U.S.C. 45(b) (2013).
result in highly concentrated markets are presumed 14 See Merger Guidelines § 7.1 (recognizing that
mstockstill on DSK4VPTVN1PROD with NOTICES
11 See Shapiro, supra note 4, at 708 (‘‘In
to be likely to enhance market power, but this ‘‘the risk that a merger will induce adverse
presumption can be rebutted by persuasive particular, as the revised Guidelines explain, the coordinated effects may not be susceptible to
evidence showing that the merger is unlikely to Agencies place considerable weight on HHI quantification or detailed proof’’). The Guidelines
enhance market power.’’); Chicago Bridge & Iron measures in cases involving coordinated effects.’’). contemplate that the third factor can be satisfied in
Co., N.V. v. FTC, 534 F.3d 410, 423 (5th Cir. 2008) 12 Among the Antitrust Division’s recent several ways; as Commissioner Wright himself
(‘‘Typically, the Government establishes a prima prosecutions of companies and individuals in the notes, an acquisition of a maverick firm is but ‘‘one
facie case by showing that the transaction in automotive parts industry for price-fixing and bid- illustrative example of the type of evidence that
question will significantly increase market rigging is an indictment involving TRW in an would satisfy this third condition.’’ Wright Dissent
concentration, thereby creating a presumption that alleged conspiracy for seat belts, air bags, and at 3.
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![27958 Federal Register / Vol. 80, No. 94 / Friday, May 15, 2015 / Notices
accepted the proposed settlement and on which to conclude that this merger ones that involve coordination of
ordered the divestiture of the European may enhance the vulnerability to remedies across antitrust jurisdictions—
assets.15 Furthermore, there is no coordinated effects that already exists in should not be discounted. The public
evidence that the divestiture of TRW’s the relevant market at issue.1 interest analysis thus should take into
linkage and suspension business would I further view this consent to be in the account the need for predictability and
eliminate any efficiencies that otherwise public interest. In my time as a fairness for merging parties in these
might result from the parties’ proposed Commissioner, I have advocated for circumstances.
combination. transparency, predictability, and
fairness across a variety of settings.2 Dissenting Statement of Commissioner
In sum, because we have reason to
Those three critical goals apply equally Joshua D. Wright
believe that customers and consumers
are likely to suffer a substantial loss of to the merger context. A practical In the Matter of ZF Friedrichshafen AG
competition as a result of the proposed problem in our merger review process and TRW Automotive Holdings Corp.
transaction, and there are no arises, however, where investigations The Commission has voted to issue a
demonstrated countervailing are cut short by the merging parties, Complaint and Decision & Order against
efficiencies, we believe the public which, for business, strategic, or other ZF Friedrichshafen AG (‘‘ZF’’) to
interest is best served by accepting the reasons, offer staff and then ultimately remedy the allegedly anticompetitive
proposed consent order to remedy our the Commission a proposed remedy in
effects of ZF’s proposed acquisition of
competitive concerns. lieu of responding to a Second Request
TRW Automotive Holdings Corp.
or other compulsory process. In such
Separate Statement of Commissioner (‘‘TRW’’). I respectfully dissent because
cases, the available evidence may be
Maureen K. Ohlhausen the evidence is insufficient to provide
sufficient to provide reason to believe
reason to believe ZF’s acquisition will
ZF Friedrichshafen AG/TRW the proposed transaction would violate
substantially lessen competition for
Automotive Holdings Corp. Section 7, but a full investigation might
heavy vehicle tie rods sold in North
(or might not) reveal additional
I voted in favor of issuing for public America. In particular, I believe the
evidence sufficient to counterbalance
comment the proposed consent Commission has not met its burden to
the available evidence and support
agreement in this matter. As discussed show that the acquisition will result in
closing the investigation altogether. In
below, there is sufficient evidence to an increased likelihood of harm from
that situation, the goals of predictability
provide me with a reason to believe coordinated effects or from unilateral
and fairness counsel against forcing
that, absent a remedy, the transaction is effects. As a consequence, the
merging parties (and Commission staff)
likely to violate Section 7 of the Clayton Commission should close the
to incur the significant costs associated
Act. I also find that the proposed investigation and allow the parties to
with a full-phase investigation. Merging
consent, which is intended to remedy complete the proposed transaction
parties also expend non-trivial amounts
any such violation, is in the public without imposing a remedy.
of time and money in developing and I write separately today to explain my
interest. then proposing remedies to FTC staff; vote and to discuss the quality and
Based on the evidence presented to
those good-faith efforts—particularly quantity of evidence necessary to
me—including the evidence discussed
in the Analysis to Aid Public Comment 1 See
support a coordinated and unilateral
2010 Horizontal Merger Guidelines § 7.1.
and the majority statement in this 2 Those settings have included the use of
effects challenge under the 2010
matter—I am satisfied that the ‘‘reason disgorgement in competition cases, the proper Horizontal Merger Guidelines (‘‘Merger
to believe’’ prong that the Commission scope of our standalone Section 5 authority, the Guidelines’’).
must assess in issuing a complaint, intersection of intellectual property and antitrust, The Complaint alleges the proposed
and the treatment of U.S. businesses by foreign transaction increases the likelihood of
including in the consent context, is met antitrust jurisdictions. See, e.g., Dissenting
here. It is important to note that the Statement of Commissioner Maureen K. Ohlhausen, coordinated effects and unilateral effects
Commission makes the reason to believe In re Cardinal Health, Inc., FTC File No. 101–0006 in the market for heavy vehicle tie rods
determination before a full evidentiary (Apr. 17, 2015), available at https://www.ftc.gov/ sold in North America.1 After the
public-statements/2015/04/dissenting-statement- proposed transaction, ZF and TRW
and legal record is developed during a commissioner-maureen-k-ohlhausen-cardinal-
trial on the merits, which suggests that health-inc (dissenting from consent involving would have a combined 41% share. The
the standard must necessarily be lower disgorgement of profits for alleged Section 2 remaining competitor, Urresko, has a
than what the Commission or a court violation); Maureen K. Ohlhausen, Section 5 of the 58% share. Fringe suppliers have a 1%
FTC Act: Principles of Navigation, 2 J. Antitrust share.
should apply for finding ultimate Enforcement 1 (2014), available at http://
liability. Individual Commissioners, of www.ftc.gov/public-statements/2013/10/section-5- I. Coordinated Effects Are Unlikely in
course, have different views on how ftc-act-principles-navigation-0 (advocating for
the Relevant Market
much evidence is necessary to satisfy additional guidance on the FTC’s use of its
standalone Section 5 authority); Dissenting The Complaint implicates an
the reason to believe standard. Statement of Commissioner Maureen K. Ohlhausen,
Unfortunately, there does not appear to In re Motorola Mobility LLC & Google, Inc., FTC
important question with regard to
be a consensus view on what the File No. 121–0120 (Jan. 3, 2013), available at coordinated effects: What evidence is
standard requires. I respect https://www.ftc.gov/public-statements/2013/01/ necessary to establish reason to believe
statement-commissioner-maureen-ohlhausen-0 a proposed transaction may
Commissioner Wright’s view that the (dissenting from consent involving standalone
standard was not met for him in this Section 5 claim against holder of standard-essential
substantially lessen competition by
case. For the reasons identified in the patents); Testimony of Commissioner Maureen K. ‘‘enabling or encouraging post-merger
Ohlhausen, ‘‘The Foreign Investment Climate in coordinated interaction among firms in
mstockstill on DSK4VPTVN1PROD with NOTICES
majority statement in this matter, I
China: U.S. Administration Perspectives on the the relevant market that harms
determined that there is a credible basis Foreign Investment Climate in China,’’ before the
U.S.-China Economic and Security Review
customers.’’ 2
15 See Press Release, European Commission, Commission (Jan. 28, 2015), available at https://
1 Compl. ¶ 12, ZF Friedrichshafen AG, FTC File
Mergers: Commission Clears Acquisition of www.ftc.gov/public-statements/2015/01/testimony-
Automotive Components Manufacturer TRW by commissioner-maureen-k-ohlhausen-hearing- No. 141–0235 (May 5, 2015).
Rival ZF, Subject to Conditions (Mar. 12, 2015), foreign-investment (discussing importance of 2 U.S. Dep’t of Justice & Fed. Trade Comm’n,
available at http://europa.eu/rapid/press-release_ foreign antitrust jurisdictions pursuing the goals of Horizontal Merger Guidelines § 7 (2010) [hereinafter
IP-15-4600_en.htm. predictability, transparency, and fairness). Merger Guidelines].
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![27960 Federal Register / Vol. 80, No. 94 / Friday, May 15, 2015 / Notices
their incentives to engage in tacit III. Conclusion Finally, the Commission cites a draft
collusion; far from it.’’ 11 The required The Commission insists that a article, authored by Steve Salop, in
additional evidence needed to satisfy different ‘‘lens’’ should be used to support of its view that economic
the third condition is absent in this evaluate evidence in markets where the evidence supports a presumption that
case. number of firms is reduced by merger to four-to-three and three-to-two mergers
three or two.15 The Commission cites in are competitively suspect.21 The article
II. Unilateral Effects Are Unlikely in does not purport to study or provide
the Relevant Market support of its structural theory and
new economic evidence on the
presumption three academic articles
The sole evidence offered in favor of relationship between market structure
written by economists.16 Only two offer
the Commission’s allegation that the and competition. Thus, it cannot
economic evidence and the proffered
support the Commission’s
merger will render unilateral price substantiation fails to support the claim.
proposition.22 In sum, there is simply
effects likely is that some customers The first is an important early entrant
no empirical economic evidence
have used the competition between ZF into the static entry literature examining
sufficient to warrant a presumption that
and TRW to obtain better pricing and the relationship between market size
anticompetitive coordination is likely to
some customers have switched between and the number of entrants in a market,
result from four-to-three or three-to-two
the two suppliers.12 While this is focusing upon isolated rural markets.17 mergers.
certainly material to our inquiry, this is It strains credulity to argue that It is important to note that the
a thin reed, without more, upon which Bresnahan and Reiss’s important Commission and I have no disagreement
to base a unilateral price effects case. analysis of the impact of entry in over the proposition that the number of
There is no information on price effects. markets involving doctors, dentists, competitors within a market is a
Moreover, there is no substantial druggists, plumbers, and tire dealers in relevant fact to assess the likely
evidence on the record with respect to local and isolated areas, where they find competitive effects of a transaction. The
the role the market leader, Urresko, the competitive benefits of a second relevant question is not whether the
plays in disciplining prices. The fact competitor are especially important, number of firms matters but how much
that Urresko is a recent entrant and has apply with generality sufficient to it matters—and in particular, whether a
become the market leader in a relatively support a widely applicable movement to three or two firms
short period of time also renders presumption of harm based upon the warrants a generally applicable
dubious the proposition that barriers to number of firms. Indeed, the authors presumption that a transaction is more
entry in the relevant market are warn against precisely this likely than not to harm competition. I
adequate to sustain a post-merger price interpretation of their work.18 do not believe it does. The Commission
increase. Additionally, even with The second is a laboratory experiment disagrees.
sufficient barriers, Urresko’s rapid and does not involve the behavior of The Merger Guidelines make clear
growth undermines significantly any actual firms and certainly cannot that the purpose of market
unilateral effects argument and suggests provide sufficient economic evidence to concentration and market shares
a post-merger price increase from a support a presumption that four-to-three associated thresholds ‘‘is not to provide
merged ZF–TRW would be fragile and and three-to-two mergers in real-world a rigid screen to separate competitive
potentially unsuccessful. The Merger markets will result in anticompetitive benign mergers from anticompetitive
Guidelines contemplate the possibility coordination.19 Once again, the authors ones, although high levels of
of intense competition in markets with warn against such an interpretation.20 concentration do raise concerns.’’ 23
small numbers of firms, observing that
15 See Statement of the Federal Trade
‘‘Even a highly concentrated market can markets. This implies that there exists no unique
Commission, supra note 9, at 2. number of firms that determines a definite
be very competitive if market shares 16 Id. at 2 n.5.
borderline between non-cooperative and collusive
fluctuate substantially over short 17 Timothy F. Bresnahan & Peter C. Reiss, Entry markets irrespective of all institutional and
periods of time in response to changes and Competition in Concentrated Markets, 99 J. Pol. structural details of the experimental markets.’’).
in competitive offerings.’’ 13 Econ. 977 (1991). While Bresnahan and Reiss is an 21 Steven C. Salop, The Evolution and Vitality of
important early contribution to the static entry Merger Presumptions: A Decision-Theoretic
Moreover, unilateral effects in a literature, it cannot possibly bear the burden the Approach (Georgetown Law Faculty Publications
homogeneous goods market principally Commission wishes to place upon it. Abstracting and Other Works, Working Paper No. 1304, 2014),
involve reductions in output.14 In order from the complexities of market definition was available at http://scholarship.law.georgetown.edu/
necessary for the researchers to isolate entry facpub/1304/.
to be profitable, the reduction in output decisions. This is possible when studying the 22 Nevertheless, to the extent Salop argues in
must not be met by a sufficient supply effects of entry by a second dentist in a town with favor of legal presumptions in merger analysis, he
response by rivals. Thus, absent a population of less than 1,000, but not in most real- clarifies that they ‘‘obviously should be based on
meaningful capacity constraints, world antitrust applications. The authors of the valid economic analysis, that is, proper economic
study make this point themselves, noting that presumptions,’’ which should be updated ‘‘based
unilateral effects are less likely in ‘‘whether this pattern appears in other industries on new or additional economic factors besides
homogeneous goods markets. I have remains an open question.’’ Id. at 1007. market shares and concentration.’’ Id. at 37, 48. I
seen no evidence that Urresko is 18 In earlier research using similar empirical
agree. Additionally, Salop explains that
capacity constrained. techniques and data—namely, small rural ‘‘[c]ontemporary economic learning suggests that
markets—Bresnahan and Reiss plainly reject the concentration be considered when undertaking
notion that the findings should inform views of competitive effects analysis—in conjunction with
11 Janusz A. Ordover, Coordinated Effects, in 2
market structure and competition generally: ‘‘We do other factors suggested by the competitive effects
Issues in Competition Law and Policy 1359, 1367 not believe that these markets ‘stand in’ for highly theory—but not treated as the sole determinant of
(ABA Section of Antitrust Law 2008) (‘‘It is quite concentrated industries in the sectors of the post-merger pricing.’’ Id. at 13–14. Notably, Salop
mstockstill on DSK4VPTVN1PROD with NOTICES
clear . . . that a reduction in the number of firms economy where competition is national or global.’’ does not endorse a distinction between four-to-three
and concomitant increases in concentration do not Timothy F. Bresnahan & Peter C. Reiss, Do Entry mergers or three-to-two mergers and mergers in less
necessarily make collusion inevitable or even more Conditions Vary Across Markets, 3 Brookings concentrated markets that justifies a presumption
likely, stable, or complete.’’). Papers Econ. Activity 833, 868 (1987). that the former are anticompetitive; rather, he
12 See Analysis of Agreement Containing Consent 19 Steffen Huck et al., Two Are Few and Four Are merely observes that empirical evidence and
Order to Aid Public Comment 2, ZF Friedrichshafen Many: Number Effects from Experimental economic theory do not warrant ‘‘ignoring market
AG, FTC File No. 141–0235 (May 5, 2015). Oligopolies, 53 J. Econ. Behavior & Org. 435 (2004). shares and concentration in merger analysis.’’ Id. at
13 Merger Guidelines § 5.3, supra note 2. 20 Id. at 436 (‘‘The number of firms is not the only 12 (emphasis in original).
14 See id. § 6.3. factor affecting competition in experimental 23 Merger Guidelines, supra note 2, § 5.3.
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![Federal Register / Vol. 80, No. 94 / Friday, May 15, 2015 / Notices 27961
Rather concentration is but one aspect such research has been done in this minimum level of evidence required to
of the inquiry aimed at better market. Accordingly, unlike in generic substantiate a merger challenge. I reject
understanding post-merger incentives to pharmaceutical markets, we have no the view that it should be a standard
compete. The predictive power of evidence to conclude that a simple that should be relaxed because the
market share and market concentration reduction in the number of firms in this merging parties offer a remedy.31 The
data is informed by economic theory market is likely to lead to higher prices Commission is primarily a law
and available empirical evidence. There and lower output. Simply assuming enforcement agency, albeit one that
is no empirical evidence sufficient to such a relationship exists in this market largely conducts it business by entering
establish a generally applicable without any evidence to suggest that it into consents with merging parties.
presumption that mergers that reduce does harkens back to the bad old days Making the consent process more
the number of firms to three or two are of the first half of the 20th century, efficient and predictable is a laudable
likely to harm competition.24 Further, when the structure-conduct- goal; but we must not allow pursuit of
the Commission’s reliance upon such performance paradigm was in vogue. a more efficient consent process to
shorthand structural presumptions To summarize, there are three-to-two distort our evaluation of the substantive
untethered from empirical evidence mergers that give rise to unilateral merits. To do so, as in my view we have
subsidize a shift away from the more effects, and three-to-two mergers that here, risks in the long run reducing the
rigorous and reliable economic tools give rise to coordinated effects. It is our institutional capital of the agency in
embraced by the Merger Guidelines in burden to show that this three-to-two magnitudes far greater than any
favor of convenient but obsolete and merger is likely anticompetitive. The potential cost savings from truncating
less reliable economic analysis. Commission must find sufficient an investigation.
This is not to say that evidence of evidence to support an inference of For these reasons, I cannot join my
changes in market structure cannot ever likely economic harm to consumers. colleagues in supporting the consent
warrant such a presumption. It does The heavy degree of reliance upon a order because I do not have reason to
when the evidence warrants as much. structural presumption in this case is believe the transaction violates Section
The Commission has in certain contexts not sufficient to do so. 7 of the Clayton Act nor that a consent
found reason to believe competition Finally, the Commission and ordering divestiture is in the public
would be substantially lessened based Commissioner Ohlhausen each claim interest.
simply upon a reduction of firms in the that the quantity, and presumably the
[FR Doc. 2015–11721 Filed 5–14–15; 8:45 am]
relevant market. See Actavis plc-Forest quality, of the evidence is not the same
BILLING CODE 6750–01–P
Laboratories 25 and also Akorn-Hi-Tech for investigations truncated by remedy
Pharmacal,26 which both involve proposals compared to cases where a
generic pharmaceutical markets. The full phase investigation is completed or FEDERAL TRADE COMMISSION
Commission was able to draw compared to a completed trial,
conclusions about the relationship respectively.28 While this observation is [File No. 141 0129 ]
between price and the number of firms an accurate description of the pragmatic
in generic pharmaceutical markets reality of conducting law enforcement Holcim Ltd. and Lafarge S.A.; Analysis
because substantial research has been investigations, I do not agree with the of Proposed Consent Orders To Aid
done to establish that such a implication that the quantum and Public Comment
relationship exists.27 Indeed, the cases quality of evidence needed to satisfy the AGENCY: Federal Trade Commission.
in the pharmaceutical industry are the ‘‘reason to believe’’ standard should ACTION: Proposed consent agreement.
exceptions that prove the rule that the turn on whether and when a remedy
Commission needs to do more than proposal is offered during an SUMMARY: The consent agreement in this
count the number of firms in a market investigation. The idea is that we should matter settles alleged violations of
to have reason to believe a substantial ‘‘take into account the need for federal law prohibiting unfair methods
lessening of competition is likely. No predictability and fairness for merging of competition. The attached Analysis to
parties in these circumstances’’ 29 and Aid Public Comment describes both the
24 See Statement of Commissioner Joshua D.
considerations whether it is allegations in the draft complaint and
Wright 3–5, Holcim Ltd., FTC File No. 141–0129
(May 8, 2015).
‘‘appropriate to subject the parties to the the terms of the consent orders—
25 Analysis of Agreement Containing Consent added expense and delay of a full phase embodied in the consent agreement—
Orders to Aid Public Comment 2, Actavis plc, FTC investigation.’’ 30 I fully support the that would settle these allegations.
File No. 141–0098 (June 30, 2014) (‘‘In generic agency identifying opportunities to DATES: Comments must be received on
pharmaceutical product markets, price generally
decreases as the number of generic competitors
lower the administrative costs of or before June 4, 2015.
increases. Accordingly, the reduction in the number antitrust investigations and believe ADDRESSES: Interested parties may file a
of suppliers within each relevant market would there to be ample opportunity to do so. comment at https://
likely have a direct and substantial anticompetitive But attempts to operate a more efficient
effect on pricing.’’).
ftcpublic.commentworks.com/ftc/
26 Analysis of Agreement Containing Consent
law enforcement system must satisfy the holcimlafargeconsent online or on
Orders to Aid Public Comment 3, Akorn constraint, required by law, that there is paper, by following the instructions in
Enterprises, Inc., FTC File No. 131–0221 (Apr. 14, reason to believe a transaction violates the Request for Comment part of the
2014) (‘‘In generic pharmaceuticals markets, price is Section 7 of the Clayton Act. That SUPPLEMENTARY INFORMATION section
heavily influenced by the number of participants
with sufficient supply.’’).
standard sets a relatively low bar for the below. Write ‘‘Holcim Ltd. and Lafarge
27 See David Reiffen & Michael R. Ward, Generic
mstockstill on DSK4VPTVN1PROD with NOTICES
28 See Statement of the Federal Trade
Drug Industry Dynamics, 87 Rev. Econ. & Stat. 37 31 That said, as I stated in Holcim Ltd., I am not
(2005). As an aside, given that we are now ten years Commission, supra note 9, at 3 n.7; see also suggesting the ‘‘reason to believe’’ standard
removed from the publication of this important Separate Statement of Commissioner Maureen K. ‘‘requires access to every piece of relevant
study and over twenty years removed from the Ohlhausen 1, ZF Friedrichshafen AG, FTC File No. information and a full and complete economic
sample period, it might be worth revisiting this 141–0235 (May 8, 2015). analysis of a proposed transaction, regardless of
29 Separate Statement of Commissioner Maureen
question with fresher data if the Commission whether the parties wish to propose divestitures
intends to continue relying upon inferences of K. Ohlhausen, supra note 28, at 2. before complying with a Second Request.’’ See
competitive harm from market structure in the 30 Statement of the Federal Trade Commission, Statement of Commissioner Joshua D. Wright, supra
generic pharmaceutical market. supra note 9, at 3 n.7. note 24, at 11.
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Document Created: 2018-02-21 10:27:21
Document Modified: 2018-02-21 10:27:21
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Proposed consent agreement. | |
| Dates | Comments must be received on or before June 5, 2015. | |
| Contact | Stephen Antonio, Bureau of Competition, (202-326-2536), 600 Pennsylvania Avenue NW., Washington, DC 20580. | |
| FR Citation | 80 FR 27954 |
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