Corporate & Securities Law

Section 7 is focused on competition, not price. A comment on Leary?s discussion of the Ovation case.

By Hanno Kaiser

In a recent Antitrust Magazine article (login required), Thomas Leary explores the implications of Commissioner Rosch’s concurring statement in the Ovation matter, in which Rosch explained why he would have challenged not only Ovation’s acquisition of Neoprofen but also its prior acquisition of Indocin from Merck. Leary sees Rosch’s opinion as an extension of the analysis of post merger incentives.

[M]erger law today focuses on changed incentives that flow from changes in industry structure; the Rosch opinion suggests that adverse incentive effects can also flow from changes in the structure of the surviving competitor. … Changes in industry structure are often a useful tool when predicting the likelihood of a price effect, but sound economics does not necessarily require that this structural change be an element of the offense.

The problem with this argument is the implication that higher post-transaction prices as such are of concern under Section 7. That, however, is not correct. Section 7 is concerned with acquisitions the effect of which “may be substantially to lessen competition, or tend to create a monopoly.” In other words, if we focus on price, then only those price effects are relevant to Section 7 that are the result of a lessening of competition. Price effects that are not the result of a lessening of competition are not actionable under Section 7. And that is why there is a more meaningful difference between a change in the industry structure and a change in the firm structure as a result of the acquisition than Leary suggests. There is ample evidence that higher industry concentration permits some inference as to diminished market performance — with all the important and customary caveats. But a change in firm structure does not permit an inference of diminished competition. Put simply, Section 7 is focused on competition, not price, whereas Rosch’s concurrence is focused on price, not competition.

Full post as published by Antitrust Review on August 19, 2009 (boomark / email).