Merger Analysis under the Antitrust Laws
Today, the United States is in the midst of a merger wave. The number of mergers and acquisitions reported has increased dramatically as a direct result of the past financial crisis and economic downturn. During the period, the Federal Trade Commission along with the Justice Department has blocked a great number of potential mergers and acquisitions, helping save consumers “millions of dollars that they would otherwise have paid in higher prices.” (Vachris 223) Thus, to recognize and challenge anticompetitive mergers and acquisitions is such a difficult task that needs us to have a good understanding of the antitrust laws. What is antitrust law?
Antitrust laws, also known as competition laws, are “laws that promote or maintain market competition by regulating anti-competitive conduct.” (Elhauge) First of all, the legislative purpose of antitrust laws is to maintain the effective competition in the market economy. Because effective competition requires operators to continue to pursue greater efficiency, develop more advanced technology and provide more high quality and inexpensive products to the market, it will let companies to gain opportunities to survive and develop in the market economy. Then, based on the past experience, people have a relatively clear consensus that monopoly behaviors may restrain and harm the market effective competition. For example, in 2009, when rumors were widely spread that Microsoft Corporation, the largest software manufacture in the world, would deploy the so called “black screen tactic” around the world, especially in China, it made me and various personal computer users worried. The reason “why Microsoft can be so arrogant is that it owns almost ninety percent of market share in the personal operating system market.”(Tan B2) relying on its flagship Windows operating system. Thus, I’m deeply aware of that the monopoly can restrain and harm the efficiency of the market as well as the well-being of consumers. Generally, the types of merger and acquisition that were prohibited fall into two broad categories: horizontal merger and vertical merger. What is horizontal merger? A horizontal merger is when two companies competing in the same market merge and join together. “Because the direct consequence of horizontal merger is the decline in the number of competitors in the market, it has the most direct and serious impacts on the market competition.”(Green and Cromley 359) This type of merger can either have a very large effect or little to no effect on the market. When two extremely small companies horizontally combine, the results of the merger are less noticeable. These smaller horizontal merger and acquisition are very common. For instance, if a small local drug store were to horizontally merge with another local drug store, the impact of this combination on the drug distribution market would be minimal. However, in a large horizontal merger, the resulting effects can be felt throughout the domestic market and sometimes even throughout the global market. Large horizontal mergers are often recognized as anti-competition. If one company holding forty percent of the market share combines with another company which also holds forty percent of market share, their combined share holding will then increase to eighty percent. This large horizontal merger has now given the new company an unfair market advantage over its competitors. For example, if General Electric Company were to horizontally merge with Rolls-Royce Group plc, the impacts of this combination on the aerospace engine market would be substantial since both companies hold almost 40 percent of market share in the commercial aircraft engine market. Then what is vertical merger? A vertical merger is one in which a company combine with a supplier or distributor. The reason why this type of merger can be viewed...
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