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FTC Hearings #5: Vertical Mergers and the Consumer Welfare Standard

Last Thursday, the FTC held the fifth in its set of hearings focusing on “Competition and Consumer Protection in the 21st Century.” In this installment, there were two overarching foci: the Vertical Merger Guidelines (VMGs) and a return to the discussion around the Consumer Welfare Standard (CWS). Additionally, multiple speakers gave presentations throughout the day and their slides can be found here.

The first two panels discussed the climate surrounding vertical mergers and the current state of Vertical Merger Guidelines. Key takeaways were the desire for greater empirical evidence to analyze and inform VMGs and debate surrounding the necessity of such guidelines. The second half of the day debated whether any changes to the Consumer Welfare Standard were necessary. These panels highlighted contrasting opinions of a more recent view that the CWS is inadequate and incapable of handling antitrust concerns of today. Some believe this requires its replacement; the opposing view is that consumers’ welfare is the only appropriate metric for assessing antitrust concerns.

For more detail, you can read a summary of the day split into the morning and afternoon subjects below.

Vertical Mergers

The day began with a short introduction from Commissioner Phillips followed by a presentation (slides 5-57) by Steven Salop, Professor of Economics and Law in the Georgetown University Law Center. In his presentation, Salop petitioned for a revision of the vertical merger guidelines with greater focus on oligopoly markets and employing the Baker Hughes/Heinz 3-step analysis (slide 30) in the application of merger law.

O’Brien (slides 59-68) argued that before guidelines can articulate any clear and robust principles we need to start with foundational economics. O’Brien also stated “the usual notion that market power makes things worse simply doesn’t apply in vertical mergers.” Next to speak was Margaret Slade, Professor Emeritus in the Vancouver School of Economics at The University of British Columbia. Slade (slides 69-81) delved into the distinctions between vertical and horizontal mergers and what they may mean for developing VMGs. Slade closed with the thought that any guidelines should include clear indications of which mergers are unlikely to be challenged.

After Slade was Carl Shapiro, Transamerica Professor of Business Strategy at the University of California at Berkeley. Shapiro stated unequivocally he believes we need new merger guidelines, conceding there is “no simple answer, not all vertical mergers are good or bad and there are cases of harm to consumers and competition where law applies…but it is dangerous not to move forward with refreshing the VMGs.” The final speaker of the first panel was Francine Lafontaine, Professor of Economics at the University of Michigan Ross School of Business. Lafontaine (slides 83-100) pushed back on some of Salop’s earlier claims on vertical mergers and argued that while some vertical mergers can be problematic and should be reviewed, more academic research is required before developing any new merger guidelines.

The next panel was a continuation of the discussion on vertical mergers that began in the previous panel. Speakers included Laura Wilkinson, Weil, Gotshal & Manges; Gene Kimmelman, President and CEO of Public Knowledge; Sharis Pozen, Vice President of Global Competition Law and Policy at GE; Paul Yde, Freshfields Bruckhaus Deringer; and Jonathan Sallet, Senior Fellow at the Benton Foundation.

Wilkinson stated that most mergers are just not harmful but that guidelines would be helpful in terms of counseling firms to give a clear picture of the potential regulatory reactions. Pozen claimed that vast amounts of vertical mergers make sense, providing clear increases in efficiencies and benefits to consumers. Pozen advocated for something less than guidelines as there is no consensus on what those guidelines could be. Sallet on the other hand said he felt there is still a lot more work to be done on the guidelines and that guidelines are necessary to aid agencies in enforcement. Paul Yde, reframing the discussion, remarked that few still actually pay attention to the 1984 merger guidelines and posed the question “should we create new vertical guidelines?” Kimmelman additionally raised an aspect of the discussion often overlooked, how do we incorporate the societal effects or greater, broader, and often unclear harms from vertical mergers into our thoughts on the vertical merger guidelines?

The Consumer Welfare Standard

The hearing resumed in the latter half of the day with short presentations (slides 108-130) on alternatives to the Consumer Welfare Standard from Barry Lynn from the Open Markets Institute; Jonathan Sallet, Professor Maurice Stucke of the University of Tennessee College of Law; and Professor Timothy Wu of Columbia University Law School. All outlined their stances on the current CWS and potential alternatives. The next panel held speakers Professor Timothy Brennan of the University of Maryland School of Public Policy (slides 131-134); Deborah Garza from Covington & Burlington LLP; Gene Kimmelman; Sharis Pozen; and Professor Fiona Scott Morton of the Yale University School of Management. The final round of presentations on the CWS was by Jonathan Nuechterlein from Sidley Austin LLP (slides 142-160) and Carl Shapiro (slides 161-169). The speakers of the final panel were Barry Lynn; Fiona Scott Morton; Geoffrey Manne, President and Founder of the International Center for Law and Economics; and Maurice Stucke.

As DisCo has addressed the current debate on the Consumer Welfare Standard, further discussion of which can be found here, it will not be re-reviewed in this post. Key takeaways from the final two panels of the day were the continuing debate on the necessity to update the CWS or create a wholly new standard; discussion of the goals of antitrust regulation; whether they should take into account issues commonly branded as social or business issues; and the proper amount of power the CWS ought to hold.


Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.