1. Purpose.
These guidelines are designed to inform the business community, legal professionals, and other interested parties about the standards currently used by the Department of Justice (DOJ) when reviewing corporate acquisitions and mergers under Section 7 of the Clayton Act. While mergers can also be challenged under the Sherman Act, Section 7 of the Clayton Act is the primary legal basis for these guidelines. The DOJ’s role under Section 7 is strictly that of an enforcement agency. These guidelines are issued solely as a statement of the Department’s current policy, which may change at any time without notice. They are intended to provide a general understanding of how the DOJ may approach enforcement actions under Section 7. Given the general nature of these guidelines and the potential for differing interpretations of critical factors, they should not replace the DOJ’s business review procedures. These procedures offer specific statements about the Department’s enforcement intentions regarding particular proposed mergers or acquisitions.
2. General Enforcement Policy.
The Department of Justice’s antitrust enforcement efforts, particularly concerning Section 7, are primarily focused on maintaining and encouraging market structures that foster competition. Market structure is central to the DOJ’s merger policy because it significantly influences the behavior of firms within a market. Market structure includes relatively stable conditions such as the number of major firms, their market share distribution, and barriers to new firms entering the market. For instance, highly concentrated markets, where a few firms control a large portion of sales, tend to reduce vigorous price competition and can lead to undesirable economic behaviors like inefficient production methods or excessive marketing expenses. Emphasizing market structure not only provides reliable economic predictions relevant to the legal standard of mergers that “may be substantially to lessen competition, or to tend to create a monopoly,” but also simplifies enforcement decisions and business planning by focusing on key structural elements. Consequently, the DOJ’s enforcement under Section 7 aims to identify and prevent mergers that are likely to alter market structures in ways that could promote or allow non-competitive conduct, either immediately or in the future.
However, there are exceptional cases where structural factors alone are not decisive. In these instances, the DOJ will conduct a more comprehensive evaluation. This often occurs in rapidly evolving industries driven by significant technological changes, where traditional market definitions and structures may become less relevant. In such transitional periods, standard guideline application may be unsuitable. The Department may choose not to challenge a merger despite guideline indications or, conversely, may challenge a merger even if it appears acceptable under normal guideline application, based on anticipated future market developments. Similarly, in conglomerate mergers, the current understanding of structure-conduct relationships is still developing, which may limit reliance solely on structural criteria, as detailed in paragraphs 17 and 20.
3. Market Definition.
A proper assessment of a merger’s likely competitive impact requires defining the relevant market(s). A market is any collection of sales or commercial transactions where firms included within the grouping have a competitive advantage over those outside it. This advantage need not be substantial; it only needs to define an area of effective competition among the included sellers, where competition from excluded sellers is demonstrably less effective. Market definition can identify multiple relevant markets for evaluating a specific merger.
A market is defined by both its product dimension (“line of commerce”) and geographic dimension (“section of the country”).
(i) Line of commerce. A relevant product market usually consists of sales of any product or service that is commercially distinct from others. This is true even if other products are reasonably, but not perfectly, interchangeable in terms of price, quality, and use from a buyer’s perspective. Conversely, sales of two different products to a particular buyer group can form a single market if these products are reasonably interchangeable for that group in terms of price, quality, and use. In this case, it may also be necessary to include other products that are equally interchangeable with the initial two from the viewpoint of the same buyer group.
These definitions are used because in enforcing Section 7, the DOJ aims to prevent mergers that alter market structures in a way that could create the power to act non-competitively in producing and selling a particular product. This is the case even if other reasonably interchangeable products exist that act as imperfect substitutes and limit, but do not eliminate, that power. It is consistent with this goal to also address mergers between firms selling distinct products when the merger could create or enhance market power. This can occur if the products, while not perfectly substitutable, are significant enough alternatives to exert substantial competitive influence on each other’s production, development, or sales.
(ii) Section of the Country. The total sales of a product or service within a commercially significant geographic area (even as small as a single community) or a combination of such areas typically constitute a geographic market. This is applicable if firms selling the product make significant sales to purchasers in that area(s). The market definition doesn’t need to expand beyond such an area unless there are no significant economic barriers (e.g., high transportation costs, lack of distribution networks, customer inconvenience, or strong consumer preference for local products) preventing sales from outside the area to purchasers within. Conversely, the market definition should not be narrowed to exclude sales within such an area unless a significant economic barrier separates a group of purchasers from the rest.
Due to data limitations or inherent difficulties in precisely defining geographic markets, multiple reasonable market groupings may exist. In such cases, the DOJ believes it is most aligned with Section 7’s objectives to challenge any merger that appears illegal in any reasonable geographic market, even if it might be legal in another.
Market size is usually measured by the dollar value of sales or transactions (e.g., shipments, leases) over the most recent 12-month period with available data for merging firms and competitors. An alternate period may be used if these figures are unrepresentative. In certain markets, like commercial banking, other metrics such as total deposits might be more appropriate.
I. HORIZONTAL MERGERS
4. Enforcement Policy.
Regarding mergers between direct competitors (horizontal mergers), the Department’s enforcement under Section 7 of the Clayton Act serves several interconnected purposes: (i) preventing the disappearance of any independent company that has been a significant competitive force in a market; (ii) preventing any single company or small group from achieving market dominance; (iii) preventing significant increases in market concentration; and (iv) maintaining opportunities for future market deconcentration in already concentrated markets.
In evaluating horizontal mergers, the DOJ prioritizes the market share held by both the acquiring and acquired firms. (“Acquiring firm” and “acquired firm” are used here simply to denote the firm with the larger and smaller market share, respectively, regardless of the merger’s legal structure.) A larger market share of the acquired firm increases the likelihood that it was a substantial competitive influence and that the merger will significantly increase market concentration. A larger market share of the acquiring firm increases the likelihood that the merger will move it towards or further solidify a position of dominance or shared market power. Consequently, the DOJ’s primary standards for challenging horizontal mergers are based on the market shares of the merging firms.
5. Market Highly Concentrated.
In markets where the top four firms control approximately 75% or more of the market, the DOJ will typically challenge mergers between firms with the following approximate market shares:
| Acquiring Firm | Acquired Firm | |
|---|---|---|
| 4% | 4% or more | |
| 10% | 2% or more | |
| 15% or more | 1% or more |
(Percentages not listed in the table should be interpolated proportionally.)
6. Market Less Highly Concentrated.
In markets where the top four firms control less than approximately 75% of the market, the DOJ will generally challenge mergers between firms with the following approximate market shares:
| Acquiring Firm | Acquired Firm | |
|---|---|---|
| 5% | 5% or more | |
| 10% | 4% or more | |
| 15% | 3% or more | |
| 20% | 2% or more | |
| 25% or more | 1% or more |
(Percentages not listed should be interpolated proportionally.)
7. Market With Trend Toward Concentration.
The DOJ applies a stricter standard in markets that are not entirely unconcentrated but show a significant trend toward increasing concentration. A significant trend exists when the combined market share of any group of the largest firms (from the top two to the top eight) has increased by roughly 7% or more over a 5-10 year period leading up to the merger (excluding years with abnormal market share fluctuations). In such markets, the DOJ will usually challenge any acquisition by a firm within this group of leading firms, if the acquired firm has a market share of approximately 2% or more.
8. Non-Market Share Standards.
While market shares are paramount in evaluating horizontal mergers, achieving the goals of Section 7 sometimes requires challenging mergers that do not meet the market share thresholds in Paragraphs 5, 6, and 7. Two common scenarios where a DOJ challenge is likely are:
(a) Acquisition of a competitor that is an especially “disturbing,” “disruptive,” or unusually competitive influence in the market.
(b) A merger involving a substantial firm and a firm that, despite a small market share, has significant competitive potential or a valuable asset providing an unusual competitive edge (e.g., a leading firm acquiring a newcomer with a patent for a significantly improved product or production method).
Modifications to minimum market share thresholds may also be considered for horizontal mergers between producers of distinct but related products within the same line of commerce, as described in Paragraph 3(i), to account for the imperfect substitutability of these products.
9. Failing Company.
A merger that would otherwise be challenged may not be if: (i) one of the merging firms is in such dire financial straits with little prospect of recovery that business failure is highly probable, and (ii) the failing firm has made genuine, but unsuccessful, efforts to find a more competitively beneficial acquirer who intends to keep the firm in the market. The DOJ considers a firm “failing” only when it has no reasonable chance of survival, not merely if it has been unprofitable, lost market share, has poor management, or hasn’t fully explored self-help strategies.
When considering the acquisition of a failing division within a multi-market company, the DOJ will apply this standard cautiously due to the difficulty in assessing the viability of a division, potential for accounting manipulation, and the possibility of a healthy company rehabilitating a struggling division.
10. Economies.
Except in exceptional circumstances, the DOJ will not accept claims of economies (efficiency improvements) as justification for a merger that would normally be challenged under horizontal merger standards. This is because: (i) the DOJ’s standards generally do not challenge mergers unlikely to involve firms operating significantly below efficient scale; (ii) firms can typically achieve substantial economies through internal growth; and (iii) it is very difficult to accurately verify the existence and magnitude of claimed economies from a merger.
II. VERTICAL MERGERS
11. Enforcement Policy.
For vertical mergers (acquisitions “backward” into a supplying market or “forward” into a purchasing market), the DOJ’s enforcement under Section 7 of the Clayton Act, consistent with its broader merger policy, aims to prevent market structure changes likely to cause significant anti-competitive effects over time. Generally, the DOJ believes these effects are probable when a vertical acquisition, or series of acquisitions, by firms in a supply or purchase market significantly increases barriers to entry in either market or disadvantages existing non-integrated or partially integrated firms in ways unrelated to economic efficiency. (Barriers to entry are stable market conditions that make it harder for new competitors to enter, thus limiting their potential to restrain incumbent firm behavior and provide additional competition.)
Barriers to entry based on factors like economies of scale in production and distribution are not inherently problematic. However, vertical mergers can create undesirable entry barriers, especially by: (i) limiting access to potential customers, reducing non-integrated firms’ ability to gain the market share needed for efficient production or forcing entry at both supply and purchase levels, even if single-level entry would suffice; (ii) limiting access to potential suppliers, increasing the risk of price or supply squeezes for new entrants or requiring integrated entry; or (iii) facilitating product differentiation through advertising when a manufacturer acquires retail firms. Beyond hindering new entry, these vertical merger consequences can also artificially restrict the expansion of existing competitors by giving the merged firm unfair advantages over non-integrated or partially integrated firms, unrelated to real production or distribution efficiencies. While vertical integration can sometimes raise entry barriers or disadvantage competitors due to legitimate economies of scale (e.g., through integrated production plant structures), large vertical mergers often create barriers or disadvantages disproportionate to any resulting economies.
Precisely identifying all situations where vertical mergers will negatively impact market structure is challenging. However, the DOJ believes its enforcement policy on vertical mergers can be effectively guided by focusing on the market shares of merging firms and existing entry conditions in relevant markets. These factors typically identify situations where various adverse effects of vertical mergers are likely and competitively significant. All vertical mergers require considering competitive effects in both the supplying and purchasing markets. A significant adverse effect in either market is usually grounds for DOJ challenge. (“Supplying firm” and “purchasing firm” refer to the parties in a vertical merger, where the former sells a product bought by the latter.)
12. Supplying Firm’s Market.
When assessing whether a vertical merger may reduce competition in the supplying firm’s market, the DOJ primarily considers: (i) the supplying firm’s market share, (ii) the purchasing firm(s)’ market share, and (iii) entry conditions in the purchasing firm’s market. The DOJ will typically challenge a merger or series of mergers between a supplying firm with approximately 10% or more market share and one or more purchasing firms accounting for a total of approximately 6% or more of purchases in that market, unless there are clearly no significant barriers to entry into the purchasing firm(s)’ business.
13. Purchasing Firm’s Market.
While Paragraph 12 is designed to identify vertical mergers with likely anti-competitive effects in the supplying firm’s market, applying this standard also generally captures most vertical mergers that could harm the purchasing firm’s market. (The purchasing firm’s market includes the purchasing firm and its competitors who resell the supplier’s product or manufacture products using it.) Adverse effects in the purchasing firm’s market usually stem from significant vertical mergers involving supplying firms with over 10% market share. However, some situations exist where vertical mergers not challenged under Paragraph 12 (typically because the purchasing firm’s purchase share is less than 6%) can still be challenged. This occurs when they raise entry barriers or disadvantage the purchasing firm’s competitors by providing the purchasing firm a significant supply advantage over less integrated competitors or potential entrants. The following standard addresses the most common of these situations.
If the supplying firm’s product (and its competitors’) is complex and subject to innovation, or a scarce raw material or product with inelastic supply, the merged firm may exploit temporary advantages or shortages. They might disadvantage the purchasing firm’s competitors by refusing to sell to them (supply squeeze) or by reducing the margin between their selling price to competitors and the end-product price (price squeeze). Even if a squeeze is possible, it may not always be economically rational. However, the DOJ believes that the increased entry barriers in the purchasing firm’s market due to the risk of a squeeze are enough to prohibit mergers between a supplier with significant market power and a substantial purchaser of such a product. Therefore, when such a product is a key component of the end-product made by the purchasing firm and its rivals, the DOJ will typically challenge a merger or series of mergers between a supplying firm with approximately 20% or more market share and purchasing firms accounting for a total of approximately 10% or more of sales in the purchasing firm’s market.
14. Non-Market Share Standards.
(a) While market shares and entry conditions are primary in vertical merger enforcement, achieving Section 7’s objectives sometimes requires challenging mergers outside the market share standards of Paragraphs 12 and 13. The most common instances are acquisitions of suppliers or customers by major firms in industries with a significant trend towards vertical integration by merger. If unchallenged, this trend could raise entry barriers or disadvantage less integrated firms, and if the acquisition does not clearly result in significant production or distribution economies unrelated to advertising or promotional savings, a challenge is likely.
(b) A less frequent scenario for DOJ challenge is an acquisition of a customer or supplier intended to increase entry difficulty for potential competitors in either the acquiring or acquired firm’s market, or to unfairly disadvantage their competitors.
15. Failing Company.
The “failing company” standards outlined in Paragraph 9 also apply to vertical merger reviews.
16. Economies.
Except for unusual circumstances and as noted in Paragraph 14(a), the DOJ generally does not accept economy claims as justification for vertical mergers that would typically be challenged. This is because: (i) substantial vertical integration economies are usually achievable through internal expansion into the supply or purchase market, and (ii) where entry barriers prevent internal expansion, the DOJ’s vertical merger standards typically ensure that acquisitions of firms large enough to overcome these barriers will not be challenged.
III. CONGLOMERATE MERGERS
17. Enforcement Policy.
Conglomerate mergers are those that are neither horizontal nor vertical, as defined in Sections I and II. (Market extension mergers, involving firms selling the same product in different geographic markets, are considered conglomerate mergers.) As with other merger types, the DOJ’s enforcement concerning conglomerate mergers aims to prevent market structure changes that could substantially lessen competition or create a tendency towards monopoly over time.
Currently, the DOJ identifies two categories of conglomerate mergers with sufficiently predictable anti-competitive effects to warrant specific structural guidelines: mergers involving potential entrants (Paragraph 18) and those creating a risk of reciprocal buying (Paragraph 19).
Another significant category for enforcement action is mergers that threaten to entrench or enhance the acquired firm’s market power for various reasons. These are generally described in Paragraph 20.
As Paragraph 20 clarifies, enforcement action may also target other types of conglomerate mergers that appear anti-competitive upon specific analysis. The current lack of specific guidelines for these other types should not be interpreted as a lack of enforcement interest. Similarly, mergers described in Paragraphs 18 and 19 but not strictly meeting their criteria might still face enforcement if specific analysis indicates anti-competitive potential.
18. Mergers Involving Potential Entrants.
(a) Potential competition (the threat of entry by firms not currently or minimally in a market, either through internal growth or acquisition of a small firm) can be a crucial constraint on market power and a primary source of new competition. The DOJ will typically challenge mergers between a highly likely entrant into a market and:
**(i)** any firm with approximately 25% or more of the market;
**(ii)** one of the two largest firms in a market where the top two firms hold approximately 50% or more of the market;
**(iii)** one of the top four firms in a market where the top eight firms hold approximately 75% or more, provided the merging firm's market share is roughly 10% or more; or
**(iv)** one of the top eight firms in a market where these firms hold approximately 75% or more, if either (A) the merging firm's market share is not insignificant and there are only one or two likely entrants, or (B) the merging firm is rapidly growing.In determining if a firm is a likely potential entrant, the DOJ prioritizes its capability for competitively significant entry relative to other firms (considering technological and financial resources) and its economic incentive to enter (e.g., market attractiveness in terms of risk and profit, special market relationships, demonstrated interest in entry, natural expansion patterns).
(b) The DOJ will also typically challenge mergers between an existing competitor and a likely entrant if the purpose is to prevent the competitive “disturbance” or “disruption” that entry might cause.
(c) Unless exceptional circumstances exist, the DOJ will not accept economy claims as justification for mergers violating Paragraph 18 standards. The DOJ believes equivalent economies are usually achievable through internal growth or smaller, compliant acquisitions.
19. Mergers Creating Danger of Reciprocal Buying.
(a) Reciprocal buying (favoring customers as suppliers) is an economically unsound practice that gives an unfair competitive advantage. The DOJ will generally challenge mergers creating a significant risk of reciprocal buying. Unless specific market factors clearly minimize the likelihood of reciprocal buying, the DOJ considers a significant risk to exist when approximately 15% or more of total purchases in a market where one merging firm (“the selling firm”) sells are made by firms that also significantly sell in markets where the other merging firm (“the buying firm”) is a major buyer, and a more significant buyer than most competitors of the selling firm.
(b) The DOJ will also usually challenge: (i) mergers intended to facilitate reciprocal buying arrangements, and (ii) mergers creating substantial reciprocal buying potential if either merging firm has recently engaged in reciprocal buying, or if the merged firm does so post-merger, or attempts to induce reciprocal buying in relevant markets.
(c) Except in unusual cases, economy claims will not justify mergers creating reciprocal buying risks. The DOJ believes equivalent economies are generally achievable through other, compliant mergers.
20. Mergers Which Entrench Market Power and Other Conglomerate Mergers.
The DOJ will investigate potential anti-competitive effects and may sue in situations where acquiring a leading firm in a concentrated or rapidly concentrating market could entrench or increase its market power or raise entry barriers. Examples include: (i) mergers creating a vast size disparity between the merged firm and remaining market leaders; (ii) mergers of firms producing related products that might pressure buyers to favor the merged firm over competitors due to leverage concerns; and (iii) mergers enhancing the merged firm’s ability to increase product differentiation.
Conglomerate mergers present complex issues that have not been as thoroughly analyzed as horizontal and vertical mergers. Therefore, the DOJ’s enforcement policy in this area is less specific. The DOJ continuously analyzes and studies how conglomerate mergers can have significant anti-competitive consequences beyond these guidelines. For instance, Section 7 has been used to prevent mergers that could reduce long-term competition arising from technological advancements that might increase inter-product competition between currently imperfect substitutes. Enforcement action may be appropriate in other case-specific scenarios, and ongoing analysis may identify further categories for specific guidelines.
21. Failing Company.
The “failing company” standards in Paragraph 9 generally apply to conglomerate merger reviews. However, in borderline cases under Paragraph 18(a)(iii) and (iv), the DOJ may choose not to sue under Section 7 even if the acquired firm is not strictly “failing.”
