• Vertical mergers require enforcers to watch for “subtler threats”
• Behavioral remedies can resolve concerns in vertical deals
• Mandatory arbitration, whistleblower protections suggested

Antitrust enforcers should be guided by prudence, recognising the pragmatic trade-offs that enable agencies to make the best enforcement decisions, according to Federal Trade Commission Chairman, Andrew Ferguson.

Ferguson spoke at the International Bar Association’s 30th Annual Competition Conference in Florence on 5 September.

Prudence does not mean being overly cautious or timid, he said, but rather the “classical moral virtue by which one identifies, selects, and executes the best means to one’s end”.

“Our job is not to shape markets in accord with our own ideological visions or partisan preferences,” Ferguson said. “Our goal is a limited one – to protect people from anti-competitive behavior in the marketplace.”

Using vertical mergers, which involve combining companies or entities at different levels of the same supply chain as an example, Ferguson said enforcers must watch for “subtler” threats to competition than “horizontal” mergers of firms that compete head-to-head.

A company that acquires part of its rivals’ supply chain may be able to impose unfavorable terms of trade on its competitors by limiting their access to inputs or raising their costs, while retaining favorable terms for itself, he said. A second concern he mentioned was that vertical acquisitions can give firms access to rivals’ competitively sensitive information.

Acknowledging the US courts’ reluctance to block vertical deals, he said: “Prudence requires an openness to behavioral remedies that would likely confirm the social benefits of a vertical merger while eliminating the anti-competitive harms.”

Behavioral remedies in vertical deals can be particularly appropriate where a vertical merger raises serious short-term concerns, he said, like temporary supply substitution difficulties, but generates obvious long-run benefits.

“Blocking such a merger in litigation would deny society its benefits while eliminating only those concerns that the market likely eventually would have resolved on its own,” Ferguson said. “Crafting a remedy to mitigate or eliminate the short-term anti-competitive effects while preserving the long-term benefits would then be an optimal outcome.”

While recognizing that behavioral remedies can be difficult to construct and enforce, Ferguson said they are preferable to attempting to block problematic vertical deals outright.

For example, he said a consent order can include an arbitration provision requiring a merged firm to attempt to settle, potentially at its own expense, unresolved contractual disputes with its new customers.

He also suggested including “robust whistleblower protections”, which would give customers an incentive to provide the agency with intelligence about noncompliance.

Finally, he said a consent order could require a merged firm to assist customers who have expressed a desire to switch suppliers. He said such a provision would simultaneously promote orderly switching and disincentivize foreclosure by requiring a merged firm to internalize some of the costs of switching.

“If we see harm to competition, prudence doesn’t ask us merely to ignore the harm because of foreseeable difficulties or potential risks associated with a particular enforcement approach,” Ferguson said.

“Rather, it assists us in discerning the best path to addressing that harm using the tools available to us as competition enforcers.”