Merger guidelines are a set of internal rules set by the Federal Trade Commission (FTC) in collaboration with the Anti Trust Division of the US Department of Justice (USDOJ) to regulate the degree to which and the parameters on which these regulatory authorities may review or object to a merger proposal, in order to prevent monopoly or market dominance choking competition. These provide clues to the users as to how merger proposals would be examined. Merger guidelines are in enforcement of the anti trust laws to prevent anti trust violations in course of corporate restructuring.
These merger guidelines also deal with horizontal as well as vertical integration.
In horizontal integration or merger there is fusion of companies across the same business lines.
Vertical mergers may take two forms. In forward integration a company takes over a distribution outlet or customers downstream and in backward integration, a company acquires a raw material source or input supplier upstream.
Issues concerning both vertical and horizontal integration are part and parcel of merger guidelines.
In 1968 the first set of merger guidelines were issued that held the field till 1982. These guidelines came in under criticism on the ground of standing in the way of economies of large scale and efficiency. Even dominance of enterprises solely by dint of merit was penalized during this regime.
In 1982, Associate Attorney General Bill Baxter issued a fresh set of guidelines, based on microeconomic theory. These applied the Herfindahl index to determine the degree of market dominance as measures of market concentration.
These new set of guidelines accommodated economies of large scale and efficiency of production as the basis of merger schemes. Accordingly, they raised the permissible level of market dominance or market shares in the scrutiny of merger proposals to foster greater efficiency.
In 1984 the guidelines were revised again. The only part of the 1984 guidelines that still remains in force is Section Four, which is concerned with the review of market impact of vertical integration. New guidelines were issued in 1992 and thereafter in 1997. The 1997 guidelines continue to be effective till now.
