In a recent speech, FTC Bureau of Competition Director Deborah Feinstein discussed the FTC's approach to analyzing claims by merging parties that a merger will benefit consumers by creating efficiencies.
Feinstein began by outlining the relevant provisions of the Horizontal Merger Guidelines published jointly by DOJ and the FTC. As Section 10 of the Merger Guidelines recognizes, mergers can generate efficiencies that lead to "lower prices, improved quality, enhanced service, or new products." However, any efficiency benefits must be weighed against potential anticompetitive effects of the merger.
The FTC will credit efficiencies only where several criteria are met: (1) the efficiencies must be specific to the merger; (2) they must not be vague or speculative; and (3) they must be cognizable but cannot arise from anticompetitive reductions in output. Feinstein used the attempted Sysco/US Foods merger as a recent example where the parties' predicted efficiencies did not deter the FTC from suing to block the merger. According to Feinstein, the FTC investigated the parties' claimed efficiencies but "found that many were not merger-specific, verifiable or cognizable—and in any event, did not outweigh the harms."
On the other hand, Feinstein stated that the FTC may not oppose a merger if it can verify claimed efficiencies. To scrutinize such claims, FTC staff will conduct pricing analyses and look at cost savings from shipping, redundant facilities, and so forth. Recently, the FTC closed a merger investigation after concluding that "at least some of the asserted efficiencies were likely cognizable and sufficient to offset any plausible price increase."
Feinstein also noted that in bid markets, cost savings from efficiencies are often not passed through to consumers. In other situations, the FTC will look back at efficiencies in prior mergers, such as previous hospital or retailer combinations, to assess the likelihood that customers in a certain market—or of a certain organization—will realize the benefits of any efficiencies created by a merger.
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