1997 Merger Guidelines

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15 U.S.C. § 18 (1988). Merger subject to section 7 are prohibited if their effect “may be substantially to lessen competition, or to tend to create
a monopoly.”
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15 U.S.C. § 1 (1988). Mergers subject to section 1 are prohibited if they constitute a “contract, combination . . . , or conspiracy in restraint
of trade.”
15 U.S.C. § 45 (1988). Mergers subject to section 5 are prohibited if they constitute an “unfair method of competition.”
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These Guidelines update the Merger Guidelines issued by the U.S. Department of Justice in 1984 and the Statement of the Federal Trade
Commission Concerning Horizontal Mergers issue in 1982. The Merger Guidelines may be revised from time to time as necessary to reflect
any significant changes in enforcement policy or to clarify aspects of existing policy.
1997 MERGER GUIDELINES
0.Purpose, Underlying Policy Assumptions and Overview
These Guidelines outline the present enforcement policy of the Department of Justice and the Federal
Trade Commission (the “Agency”) concerning horizontal acquisitions and mergers (“mergers”) subject to
section 7 of the Clayton Act, to section 1 of the Sherman Act, or to section 5 of the FTC Act. They
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describe the analytical framework and specific standards normally used by the Agency in analyzing mergers.
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By stating its policy as simply and clearly as possible, the Agency hopes to reduce the uncertainty associated
with enforcement of the antitrust laws in this area.
Although the Guidelines should improve the predictability of the Agency’s merger enforcement policy,
it is not possible to remove the exercise of judgment from the evaluation of mergers under the antitrust laws.
Because the specific standards set forth in the Guidelines must be applied to a broad range of possible
factual circumstances, mechanical application of those standards may provide misleading answers to the
economic questions raised under the antitrust laws. Moreover, information is often incomplete and the
picture of competitive conditions that develops from historical evidence may provide an incomplete answer
to the forward-looking inquiry of the Guidelines. Therefore, the Agency will apply the standards of the
Guidelines reasonably and flexibly to the particular facts and circumstances of each proposed merger.
0.1Purpose and Underlying
Policy Assumptions of the Guidelines
The Guidelines are designed primarily to articulate the analytical framework the Agency applies in
determining whether a merger is likely substantially to lessen competition, not to describe how the Agency
will conduct the litigation of cases that it decides to bring. Although relevant in the latter context, the factors
contemplated in the Guidelines neither dictate nor exhaust the range of evidence that the Agency must or
may introduce in litigation. Consistent with their objective, the Guidelines do not attempt to assign the

For example, the burden with respect to efficiency and failure continues to reside with the proponents of the merger.
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Sellers with market power also may lessen competition on dimensions other than price, such as product quality, service, or innovation.
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burden of proof, or the burden of coming forward with evidence, on any particular issue. Nor do the
Guidelines attempt to adjust or reapportion burdens of proof or burdens of coming forward as those
standards have been established by the courts. Instead, the Guidelines set forth a methodology for
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analyzing issues once the necessary facts are available. The necessary facts may be derived from the
documents and statements of both the merging firms and other sources.
Throughout the Guidelines, the analysis is focused on whether consumers or producers “likely would”
take certain actions, that is, whether the action is in the actor’s economic interest. References to the
profitability of certain actions focus on economic profits rather than accounting profits. Economic profits
may be defined as the excess of revenues over costs where costs include the opportunity cost of invested
capital.
Mergers are motivated by the prospect of financial gains. The possible sources of the financial gains
from mergers are many, and the Guidelines do not attempt to identify all possible sources of gain in every
merger. Instead, the Guidelines focus on the one potential source of gain that is of concern under the
antitrust laws: market power.
The unifying theme of the Guidelines is that mergers should not be permitted to create or enhance
market power or to facilitate its exercise. Market power to a seller is the ability profitably to maintain prices
above competitive levels for a significant period of time. In some circumstances, a sole seller (a
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“monopolist”) of a product with no good substitutes can maintain a selling price that is above the level that
would prevail if the market were competitive. Similarly, in some circumstances, where only a few firms
account for most of the sales of a product, those firms can exercise market power, perhaps even
approximating the performance of a monopolist, by either explicitly or implicitly coordinating their actions.
Circumstances also may permit a single firm, not a monopolist, to exercise market power through unilateral
or non-coordinated conduct—conduct the success of which does not rely on the concurrence of other firms
in the market or on coordinated responses by those firms. In any case, the result of the exercise of market
power is a transfer of wealth from buyers to sellers or a misallocation of resources.
Market power also encompasses the ability of a single buyer (a “monopsonist”), a coordinating group
of buyers, or a single buyer, not a monopsonist, to depress the price paid for a product to a level that is

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below the competitive price and thereby depress output. The exercise of market power by buyers
(“monopsony power”) has adverse effects comparable to those associated with the exercise of market
power by sellers. In order to assess potential monopsony concerns, the Agency will apply an analytical
framework analogous to the framework of these Guidelines.
While challenging competitively harmful mergers, the Agency seeks to avoid unnecessary interference
with the larger universe of mergers that are either competitively beneficial or neutral. In implementing this
objective, however, the Guidelines reflect the congressional intent that merger enforcement should interdict
competitive problems in their incipiency.
0.2 Overview
The Guidelines describe the analytical process that the Agency will employ in determining whether to
challenge a horizontal merger. First, the Agency assesses whether the merger would significantly increase
concentration and result in a concentrated market, properly defined and measured. Second, the Agency
assesses whether the merger, in light of market concentration and other factors that characterize the market,
raises concern about potential adverse competitive effects. Third, the Agency assesses whether entry would
be timely, likely, and sufficient either to deter or to counteract the competitive effects of concern. Fourth,
the Agency assesses any efficiency gains that reasonably cannot be achieved by the parties through other
means. Finally the Agency assesses whether, but for the merger, either party to the transaction would be
likely to fail, causing its assets to exit the market. The process of assessing market concentration, potential
adverse competitive effects, entry, efficiency and failure is a tool that allows the Agency to answer the
ultimate inquiry in merger analysis: whether the merger is likely to create or enhance market power or to
facilitate its exercise.
1.Market Definition, Measurement and Concentration
1.0 Overview
A merger is unlikely to create or enhance market power or to facilitate its exercise unless it significantly
increases concentration and results in a concentrated market, properly defined and measured. Mergers that
either do not significantly increase concentration or do not result in a concentrated market ordinarily require
no further analysis.

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The analytic process described in this section ensures that the Agency evaluates the likely competitive
impact of a merger within the context of economically meaningful markets—i.e., markets that could be
subject to the exercise of market power. Accordingly, for each product or service (hereafter “product”)
of each merging firm, the Agency seeks to define a market in which firms could effectively exercise market
power if they were able to coordinate their actions.
Market definition focuses solely on demand substitution factors—i.e., possible consumer responses.
Supply substitution factors—i.e., possible production responses—are considered elsewhere in the
Guidelines in the identification of firms that participate in the relevant market and the analysis of entry. See
Sections 1.3 and 3. A market is defined as a product or group of products and a geographic area in which
it is produced or sold such that a hypothetical profit-maximizing firm, not subject to price regulation, that was
the only present and future producer or seller of those products in that area likely would impose at least a
“small but significant and nontransitory” increase in price, assuming the terms of sale of all other products
are held constant. A relevant market is a group of products and a geographic area that is no bigger than
necessary to satisfy this test. The “small but significant and nontransitory” increase in price is employed
solely as a methodological tool for the analysis of mergers: it is not a tolerance level for price increases.
Absent price discrimination, a relevant market is described by a product or group of products and a
geographic area. In determining whether a hypothetical monopolist would be in a position to exercise
market power, it is necessary to evaluate the likely demand responses of consumers to a price increase.
A price increase could be made unprofitable by consumers either switching to other products or switching
to the same product produced by firms at other locations. The nature and magnitude of these two types of
demand responses respectively determine the scope of the product market and the geographic market.
In contrast, where a hypothetical monopolist likely would discriminate in prices charged to different
groups of buyers, distinguished, for example, by their uses or locations, the Agency may delineate different
relevant markets corresponding to each such buyer group. Competition for sales to each such group may
be affected differently by a particular merger and markets are delineated by evaluating the demand response
of each such buyer group. A relevant market of this kind is described by a collection of products for sale
to a given group of buyers.
Once defined, a relevant market must be measured in terms of its participants and concentration.
Participants include firms currently producing or selling the market’s products in the market’s geographic

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Probable supply responses that require the entrant to incur significant sunk costs of entry and exit are not part of market measurement, but
are included in the analysis of the significance of entry. See Section 3. Entrants that must commit substantial sunk costs are regarded as
“committed” entrants because those sunk costs make entry irreversible in the short term without foregoing that investment; thus the
likelihood of their entry must be evaluated with regard to their long-term profitability.
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Although discussed separately, product market definition and geographic market definition are interrelated. In particular, the extent to which
buyers of a particular product would shift to other products in the event of a “small but significant and nontransitory” increase in price must
be evaluated in the context of the relevant geographic market.
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area. In addition, participants may include other firms depending on their likely supply responses to a “small
but significant and nontransitory” price increase. A firm is viewed as a participant if, in response to a “small
but significant and nontransitory” price increase, it likely would enter rapidly into production or sale of a
market product in the market’s area, without incurring significant sunk costs of entry and exit. Firms likely
to make any of these supply responses are considered to be “uncommitted” entrants because their supply
response would create new production or sale in the relevant market and because that production or sale
could be quickly terminated without significant loss. Uncommitted entrants are capable of making such
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quick and uncommitted supply responses that they likely influence the market premerger, would influence
it post-merger, and accordingly are considered as market participants at both times. This analysis of market
definition and market measurement applies equally to foreign and domestic firms.
If the process of market definition and market measurement identifies one or more relevant markets in
which the merging firms are both participants, then the merger is considered to be horizontal. Sections 1.1
through 1.5 describe in greater detail how product and geographic markets will be defined, how market
shares will be calculated and how market concentration will be assessed.
1.1 Product Market Definition
The Agency will first define the relevant product market with respect to each of the products of each
of the merging firms.
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1.11 General Standards
Absent price discrimination, the Agency will delineate the product market to be a product or group of
products such that a hypothetical profit-maximizing firm that was the only present and future seller of those
products (“monopolist”) likely would impose at least a “small but significant and nontransitory” increase in
price. That is, assuming that buyers likely would respond to an increase in price for a tentatively identified
product group only by shifting to other products, what would happen? If the alternatives were, in the

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Throughout the Guidelines, the term “next best substitute” refers to the alternative which, if available in unlimited quantities at constant
prices, would account for the greatest value of diversion of demand in response to a “small but significant and nontransitory” price increase.
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aggregate, sufficiently attractive at their existing terms of sale, an attempt to raise prices would result in a
reduction of sales large enough that the price increase would not prove profitable, and the tentatively
identified product group would prove to be too narrow.
Specifically, the Agency will begin with each product (narrowly defined) produced or sold by each
merging firm and ask what would happen if a hypothetical monopolist of that product imposed at least a
“small but significant and nontransitory” increase in price, but the terms of sale of all other products remained
constant. If, in response to the price increase, the reduction in sales of the product would be large enough
that a hypothetical monopolist would not find it profitable to impose such an increase in price, then the
Agency will add to the product group the product that is the next-best substitute for the merging firm’s
product.
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In considering the likely reaction of buyers to a price increase, the Agency will take into account all
relevant evidence, including, but not limited to, the following:
(1) evidence that buyers have shifted or have considered shifting purchases between products in
response to relative changes in price or other competitive variables;
(2) evidence that sellers base business decisions on the prospect of buyer substitution between products
in response to relative changes in price or other competitive variables;
(3) the influence of downstream competition faced by buyers in their output markets; and
(4) the timing and costs of switching products.
The price increase question is then asked for a hypothetical monopolist controlling the expanded
product group. In performing successive iterations of the price increase test, the hypothetical monopolist
will be assumed to pursue maximum profits in deciding whether to raise the prices of any or all of the
additional products under its control. This process will continue until a group of products is identified such
that a hypothetical monopolist over that group of products would profitably impose at least a “small but
significant and nontransitory” increase, including the price of a product of one of the merging firms. The
Agency generally will consider the relevant product market to be the smallest group of products that satisfies
this test.

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The terms of sale of all other products are held constant in order to focus market definition on the behavior of consumers. Movements
in terms of sale for other products, as may result from the behavior of producers of those products, are accounted for in the analysis of
competitive effects and entry. See Sections 2 and 3.
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For example, in a merger between retailers, the relevant price would be the price of a product to consumers. In the case of a merger among
oil pipelines, the relevant price would be the tariff—the price of transportation service.
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In the above analysis, the Agency will use prevailing prices of the products of the merging firms and
possible substitutes for such products, unless premerger circumstances are strongly suggestive of
coordinated interaction, in which case the Agency will use a price more reflective of the competitive price.
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However, the Agency may use likely future prices, absent the merger, when changes in the prevailing prices
can be predicted with reasonable reliability. Changes in price may be predicted on the basis of, for example,
changes in regulation which affect price either directly or indirectly by affecting costs or demand.
In general, the price for which an increase will be postulated will be whatever is considered to be the
price of the product at the stage of the industry being examined. In attempting to determine objectively
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the effect of a “small but significant and nontransitory” increase in price, the Agency, in most contexts, will
use a price increase of five percent lasting for the foreseeable future. However, what constitutes a “small
but significant and nontransitory” increase in price will depend on the nature of the industry, and the Agency
at times may use a price increase that is larger or smaller than five percent.
1.12 Product Market Definition
in the Presence of Price Discrimination
The analysis of product market definition to this point has assumed that price discrimination—charging
different buyers different prices for the same product, for example—would not be profitable for a
hypothetical monopolist. A different analysis applies where price discrimination would be profitable for a
hypothetical monopolist.
Existing buyers sometimes will differ significantly in their likelihood of switching to other products in
response to a “small but significant and nontransitory” price increase. If a hypothetical monopolist can
identify and price differently to those buyers (“targeted buyers”) who would not defeat the targeted price
increase by substituting to other products in response to a “small but significant and nontransitory” price
increase for the relevant product, and if other buyers likely would not purchase the relevant product and
resell to targeted buyers, then a hypothetical monopolist would profitably impose a discriminatory price
increase on sales to targeted buyers. This is true regardless of whether a general increase in price would
cause such significant substitution that the price increase would not be profitable. The Agency will consider

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additional relevant product markets consisting of a particular use or uses by groups of buyers of the product
for which a hypothetical monopolist would profitably and separately impose at least a “small but significant
and nontransitory” increase in price.
1.2 Geographic Market Definition
For each product market in which both merging firms participate, the Agency will determine the
geographic market or markets in which the firms produce or sell. A single firm may operate in a number of
different geographic markets.
1.21 General Standards
Absent price discrimination, the Agency will delineate the geographic market to be a region such that
a hypothetical monopolist that was the only present or future producer of the relevant product at locations
in that region would profitably impose at least a “small but significant and nontransitory” increase in price,
holding constant the terms of sale for all products produced elsewhere. That is, assuming that buyers likely
would respond to a price increase on products produced within the tentatively identified region only by
shifting to products produced at locations of production outside the region, what would happen? If those
locations of production outside the region were, in the aggregate, sufficiently attractive at their existing terms
of sale, an attempt to raise price would result in a reduction in sales large enough that the price increase
would not prove profitable, and the tentatively identified geographic area would prove to be too narrow.
In defining the geographic market or markets affected by a merger, the Agency will begin with the
location of each merging firm (or each plant of a multiplant firm) and ask what would happen if a hypothetical
monopolist of the relevant product at that point imposed at least a “small but significant and nontransitory”
increase in price, but the terms of sale at all other locations remained constant. If, in response to the price
increase, the reduction in sales of the product at that location would be large enough that a hypothetical
monopolist producing or selling the relevant product at the merging firm’s location would not find it profitable
to impose such an increase in price, then the Agency will add the location from which production is the
next-best substitute for production at the merging firm’s location.
In considering the likely reaction of buyers to a price increase, the Agency will take into account all
relevant evidence, including, but not limited to, the following:

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This arbitrage is inherently impossible for many services and is particularly difficult where the product is sold on a delivered basis and where
transportation costs are a significant percentage of the final cost.
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(1) evidence that buyers have shifted or have considered shifting purchases between different
geographic locations in response to relative changes in price or other competitive variables;
(2) evidence that sellers base business decisions on the prospect of buyer substitution between
geographic locations in response to relative changes in price or other competitive variables;
(3) the influence of downstream competition faced by buyer in their output markets; and
(4) the timing and costs of switching suppliers.
The price increase question is then asked for a hypothetical monopolist controlling the expanded group
of locations. In performing successive iterations of the price increase test, the hypothetical monopolist will
be assumed to pursue maximum profits in deciding whether to raise the price at any or all of the additional
locations under its control. This process will continue until a group of locations is identified such that a
hypothetical monopolist over that group of locations would profitably impose at least a “small but significant
and nontransitory” increase, including the price charged at a location of one of the merging firms.
The “smallest market” principle will be applied as it is in product market definition. The price for which
an increase will be postulated, what constitutes a “small but significant and nontransitory” increase in price,
and the substitution decisions of consumers all will be determined in the same way in which the are
determined in product market definition.
1.22 Geographic Market Definition
in the Presence of Price Discrimination
The analysis of geographic market definition to this point has assumed that geographic price
discrimination—charging different prices net of transportation costs for the same product to buyers in
different areas, for example—would not be profitable for a hypothetical monopolist. However, if a
hypothetical monopolist can identify and price differently to buyers in certain areas (“targeted buyers”) who
would not defeat the targeted price increase by substituting to more distant sellers in response to a “small
but significant and nontransitory” price increase for the relevant product, and if other buyers likely would not
purchase the relevant product and resell to targeted buyers, then a hypothetical monopolist would
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profitably impose a discriminatory price increase. This is true even where a general price increase would
cause such significant substitution that the price increase would not be profitable. The Agency will consider

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If uncommitted entrants likely would also remain in the market and would meet the entry tests of timeliness, likelihood and sufficiency, and
thus would likely deter anticompetitive mergers or deter or counteract the competitive effects of concern (see Section 3, infra), the Agency will
consider the impact of those firms in the entry analysis.
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additional geographic markets consisting of particular locations of buyers for which a hypothetical monopolist
would profitably and separately impose at least a “small but significant and nontransitory” increase in price.
1.3 Identification of Firms that
Participate in the Relevant Market
1.31 Current Producers or Sellers
The Agency’s identification of firms that participate in the relevant market begins with all firms that
currently produce or sell in the relevant market. This includes vertically integrated firms to the extent that
such inclusion accurately reflects their competitive significance in the relevant market prior to the merger.
To the extent that the analysis under Section 1.1 indicates that used, reconditioned or recycled goods are
included in the relevant market, market participants will include firms that produce or sell such goods and
that likely would offer those goods in competition with other relevant products.
1.32 Firms That Participate Through Supply Response
In addition, the Agency will identify other firms not currently producing or selling the relevant product
in the relevant area as participating in the relevant market if their inclusion would more accurately reflect
probable supply responses. These firms are termed “uncommitted entrants.” These supply responses must
be likely to occur within one year and without the expenditure of significant sunk costs of entry and exit, in
response to a “small but significant and nontransitory” price increase. If a firm has the technological
capability to achieve such as uncommitted supply response, but likely would not (e.g., because difficulties
in achieving product acceptance, distribution, or production would render such a response unprofitable),
that firm will not be considered to be a market participant. The competitive significance of supply responses
that require more time or that require firms to incur significant sunk costs of entry and exit will be considered
in entry analysis. See Section 3.
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Sunk costs are the acquisition costs of tangible and intangible assets that cannot be recovered through
the redeployment of these assets outside the relevant market, i.e., costs uniquely incurred to supply the
relevant product and geographic market. Examples of sunk costs may include market-specific investments
in production facilities, technologies, marketing (including product acceptance), research and development,
regulatory approvals, and testing. A significant sunk cost is one which would not be recouped within one
year of the commencement of the supply response, assuming a “small but significant and nontransitory” price

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Under other analytical approaches, production substitution sometimes has been reflected in the description of the product market. For
example, the product market for stamped metal products such as automobile hub caps might be described a “light metal stamping,” a production
process rather than a product. The Agency believes that the approach described in the text provides a more clearly focused method of
incorporating this factor in merger analysis. If production substitution among a group of products is nearly universal among firms selling one
or more of those products, however, the Agency may use an aggregate description of those markets as a matter of convenience.
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increase in the relevant market. In this context, a ”small but significant and nontransitory” price increase will
be determined in the same way in which it is determined in product market definition, except the price
increase will be assumed to last one year. In some instances, it may be difficult to calculate sunk costs with
precision. Accordingly, when necessary, the Agency will make an overall assessment of the extent of sunk
costs for firms likely to participate through supply responses.
These supply responses may give rise to new production of products in the relevant product market
or new sources of supply in the relevant geographic market. Alternatively, where price discrimination is
likely so that the relevant market is defined in terms of a targeted group of buyers, these supply responses
serve to identify new sellers to the targeted buyers. Uncommitted supply responses may occur in several
different ways: by the switching or extension of existing assets to production or sale in the relevant market;
or by the construction or acquisition of assets that enable production or sale in the relevant market.
1.321 Production Substitution and Extension:
The Switching or Extension of Existing Assets
to Production or Sale in the Relevant Market
The productive and distributive assets of a firm sometimes can be used to produce and sell either the
relevant products or products that buyers do not regard as good substitutes. Production substitution refers
to the shift by a firm in the use of assets from producing and selling one product to producing and selling
another. Production extension refers to the use of those assets, for example, existing brand names and
reputation, both for their current production and for production of the relevant product. Depending upon
the speed of that shift and the extent of sunk costs incurred in the shift or extension, the potential for
production substitution or extension may necessitate treating as market participants firms that do not
currently produce the relevant product.
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If a firm has existing assets that likely would be shifted or extended into production and sale of the
relevant product within one year, and without incurring significant sunk costs of entry and exit, in response
to a “small but significant and nontransitory” increase in price for only the relevant product, the Agency will
treat that firm as a market participant. In assessing whether a firm is such a market participant, the Agency
will take into account the costs of substitution or extension relative to the profitability of sales at the elevated

Where all firms have, on a forward-looking basis, an equal likelihood of securing sales, the Agency will assign equal market shares.
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price, and whether the firm’s capacity is elsewhere committed or elsewhere so profitably employed that such
capacity likely would not be available to respond to an increase in price in the market.
1.322 Obtaining New Assets for Production
or Sale of the Relevant Product
A firm may also be able to enter into production or sale in the relevant market within one year and
without the expenditure of significant sunk costs of entry and exit, in response to a “small but significant and
nontransitory” increase in price for only the relevant product, even if the firm is newly organized or is an
existing firm without products or productive assets closely related to the relevant market. If new firms, or
existing firms without closely related products or productive assets, likely would enter into production or sale
in the relevant market within one year without the expenditure of significant sunk costs of entry and exit, the
Agency will treat those firms as market participants.
1.4 Calculating Market Shares
1.41 General Approach
The Agency normally will calculate market shares for all firms (or plants) identified as market
participants in Section 1.3 based on the total sales or capacity currently devoted to the relevant market
together with that which likely would be devoted to the relevant market in response to a “small but significant
and nontransitory” price increase. Market shares can be expressed either in dollar terms through
measurement of sales, shipments, or production, or in physical terms through measurement of sales,
shipments, production, capacity, or reserves.
Market shares will be calculated using the best indicator of firms’ future competitive significance. Dollar
sales or shipments generally will be used if firms are distinguished primarily by differentiation of their
products. Unit sales generally will be used if firms are distinguished primarily on the basis of their relative
advantages in serving different buyers or groups of buyers. Physical capacity or reserves generally will be
used if it is these measures that most effectively distinguish firms. Typically, annual data are used, but
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where individual sales are large and infrequent so that annual data may be unrepresentative, the Agency may
measure market shares over a longer period of time.

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The constraining effect of the quota on the importer’s ability to expand sales is relevant to the evaluation of potential adverse competitive
effects. See Section 2.
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In measuring a firm’s market share, the Agency will not include its sales or capacity to the extent that
the firm’s capacity is committed or so profitably employed outside the relevant market that it would not be
available to respond to an increase in price in the market.
1.42 Price Discrimination Markets
When markets are defined on the basis of price discrimination (Sections 1.12 and 1.22), the Agency
will include only sales likely to be made into, or capacity likely to be used to supply, the relevant market in
response to a “small but significant and nontransitory” price increase.
1.43 Special Factors Affecting Foreign Firms
Market shares will be assigned to foreign competitors in the same way in which they are assigned to
domestic competitors. However, if exchange rates fluctuate significantly, so that comparable dollar
calculations on an annual basis may be unrepresentative, the Agency may measure market shares over a
period longer than one year.
If shipments from a particular country to the United States are subject to a quota, the market shares
assigned to firms in that country will not exceed the amount of shipments by such firms allowed under the
quota. In the case of restraints that limit imports to some percentage of the total amount of the product
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sold in the United States (i.e., percentage quotas), a domestic price increase that reduced domestic
consumption also would reduce the volume of imports into the United States. Accordingly, actual import
sales and capacity data will be reduced for purposes of calculating market shares. Finally, a single market
share may be assigned to a country or group of countries if firms in that country or group of countries act
in coordination.
1.5 Concentration and Market Shares
Market concentration is a function of the number of firms in a market and their respective market
shares. As an aid to the interpretation of market data, the Agency will use the Herfindahl-Hirschman Index
(“HHI”) of market concentration. The HHI is calculated by summing the squares of the individual market

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For example, a market consisting of four firms with market shares of 30 percent, 30 percent, 20 percent, and 20 percent has an HHI of 2600
(30 + 30 + 20 + 20 = 2600). The HHI ranges from 10,000 (in the case of a pure monopoly) to a number approaching zero (in the case of
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an atomistic market). Although it is desirable to include all firms in the calculation, lack of information about small firms is not critical
because such firms do not affect the HHI significantly.
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The increase in concentration as measured by the HHI can be calculated independently of the overall market concentration by doubling the
product of the market shares of the merging firms. For example, the merger of firms with shares of 5 percent and 10 percent of the market
would increase the HHI by 100 (5×10×2 = 100). The explanation for this technique is as follows: In calculating the HHI before the merger,
the market shares of the merging firms are squares individually: (a) + (b). After the merger, the sum of those shares would be squared: (a
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+ b), which equals a + 2ab + b. The increase in the HHI therefore is represented by 2ab.
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shares of all the participants. Unlike the four-firm concentration ratio, the HHI reflects both the distribution
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of the market shares of the top four firms and the composition of the market outside the four firms. It also
gives proportionately greater weight to the market shares of the larger firms, in accord with their relative
importance in competitive interactions.
The Agency divides the spectrum of market concentration as measured by the HHI into three regions
that can be broadly characterized as unconcentrated (HHI below 1000), moderately concentrated (HHI
between 1000 and 1800), and highly concentrated (HHI above 1800). Although the resulting regions
provide a useful framework for merger analysis, the numerical divisions suggest greater precision than is
possible with the available economic tools and information. Other things being equal, cases falling just above
and just below a threshold present comparable competitive issues.
1.51 General Standards
In evaluating horizontal mergers, the Agency will consider both the post-merger market concentration
and the increase in concentration resulting from the merger. Market concentration is a useful indicator of
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the likely potential competitive effect of a merger. The general standards for horizontal mergers are as
follows:
a) Post-Merger HHI Below 1000. The Agency regards markets in this region to be unconcentrated.
Mergers resulting in unconcentrated markets are unlikely to have adverse competitive effects and ordinarily
require no further analysis.
b) Post-Merger HHI Between 1000 and 1800. The Agency regards markets in this region to be
moderately concentrated. Mergers producing an increase in the HHI of less than 100 points in moderately
concentrated markets post-merger are unlikely to have adverse competitive consequences and ordinarily
require no further analysis. Mergers producing an increase in the HHI of more than 100 points in moderately
concentrated markets post-merger potentially raise significant competitive concerns depending on the factors
set forth in Sections 2–5 of the Guidelines.

15
c) Post-Merger HHI Above 1800
. The Agency regards markets in this region to be highly
concentrated. Mergers producing an increase in the HHI of less than 50 points, even in highly concentrated
markets post-merger, are unlikely to have adverse competitive consequences and ordinarily require no
further analysis. Mergers producing an increase in the HHI of more than 50 points in highly concentrated
markets post-merger potentially raise significant competitive concerns, depending on the factors set forth
in Sections 2–5 of the Guidelines. Where the post-merger HHI exceeds 1800, it will be presumed that
mergers producing an increase in the HHI of more than 100 points are likely to create or enhance market
power or facilitate its exercise. The presumption may be overcome by a showing that factors set forth in
Sections 2–5 of the Guidelines make it unlikely that the merger will create or enhance market power or
facilitate its exercise, in light of market concentration and market shares.
1.52 Factors Affecting the Significance
of Market Shares and Concentration
The post-merger level of market concentration and the change in concentration resulting from a merger
affect the degree to which a merger raises competitive concerns. However, in some situations, market share
and market concentration data may either understate or overstate the likely future competitive significance
of a firm or firms in the market or the impact of a merger. The following are examples of such situations.
1.521 Changing Market Conditions
Market concentration and market share data of necessity are based on historical evidence. However,
recent or ongoing changes in the market may indicate that the current market share of a particular firm either
understates or overstates the firm’s future competitive significance. For example, if a new technology that
is important to long-term competitive viability is available to other firms in the market, but is not available
to a particular firm, the Agency may conclude that the historical market share of that firm overstates its future
competitive significance. The Agency will consider reasonably predictable effects of recent or ongoing
changes in market conditions in interpreting market concentration and market share data.
1.522 Degree of Difference Between the Products and Locations in the Market and Substitutes
Outside the Market
All else equal, the magnitude of potential competitive harm from a merger is greater if a hypothetical
monopolist would raise price within the relevant market by substantially more than a “small but significant

16
and nontransitory” amount. This may occur when the demand substitutes outside the relevant market, as
a group, are not close substitutes for the products and locations within the relevant market. There thus may
be a wide gap in the chain of demand substitutes at the edge of the product and geographic market. Under
such circumstances, more market power is at stake in the relevant market than in a market in which a
hypothetical monopolist would raise price by exactly five percent.
2.The Potential Adverse
Competitive Effects of Mergers
2.0 Overview
Other things being equal, market concentration affects the likelihood that one firm, or a small group of
firms, could successfully exercise market power. The smaller the percentage of total supply that a firm
controls, the more severely it must restrict its own output in order to produce a given price increase, and the
less likely it is that an output restriction will be profitable. If collective action is necessary for the exercise
of market power, as the number of firms necessary to control a given percentage of total supply decreases,
the difficulties and costs of reaching and enforcing an understanding with respect to the control of that supply
might be reduced. However, market share and concentration data provide only the starting point for
analyzing the competitive impact of a merger. Before determining whether to challenge a merger, the
Agency also will assess the other market factors that pertain to competitive effects, as well as entry,
efficiencies and failure.
This section considers some of the potential adverse competitive effects of mergers and the factors in
addition to market concentration relevant to each. Because an individual merger may threaten to harm
competition through more than one of these effects, mergers will be analyzed in terms of as many potential
adverse competitive effects as are appropriate. Entry, efficiencies, and failure are treated in Sections 3–5.
2.1Lessening of Competition
Through Coordinated Interaction
A merger may diminish competition by enabling the firms selling in the relevant market more likely, more
successfully, or more completely to engage in coordinated interaction that harms consumers. Coordinated
interaction is comprised of actions by a group of firms that are profitable for each of them only as a result

17
of the accommodating reactions of the others. This behavior includes tacit or express collusion, and may
or may not be lawful in and of itself.
Successful coordinated interaction entails reaching terms of coordination that are profitable to the firms
involved and an ability to detect and punish deviations that would undermine the coordinated interaction.
Detection and punishment of deviations ensure that coordinating firms will find it more profitable to adhere
to the terms of coordination than to pursue short-term profits from deviating, given the costs of reprisal. In
this phase of the analysis, the Agency will examine the extent to which post-merger market conditions are
conducive to reaching terms of coordination, detecting deviations from those terms, and punishing such
deviations. Depending upon the circumstances, the following market factors, among others, may be relevant:
the availability of key information concerning market conditions, transactions and individual competitors; the
extent of firm and product heterogeneity; pricing or marketing practices typically employed by firms in the
market; the characteristics of buyers and sellers; and the characteristics of typical transactions.
Certain market conditions that are conducive to reaching terms of coordination also may be conducive
to detecting or punishing deviations from those terms. For example, the extent of information available to
firms in the market, or the extent of homogeneity, may be relevant to both the ability to reach terms of
coordination and to detect or punish deviations from those terms. The extent to which any specific market
condition will be relevant to one or more of the conditions necessary to coordinated interaction will depend
on the circumstances of the particular case.
It is likely that market conditions are conducive to coordinated interaction when the firms in the market
previously have engaged in express collusion and when the salient characteristics of the market have not
changed appreciably since the most recent such incident. Previous express collusion in another geographic
market will have the same weight when the salient characteristics of that other market at the time of the
collusion are comparable to those in the relevant market.
In analyzing the effect of a particular merger on coordinated interaction, the Agency is mindful of the
difficulties of predicting likely future behavior based on the types of incomplete and sometimes contradictory
information typically generated in merger investigations. Whether a merger is likely to diminish competition
by enabling firms more likely, more successfully or more completely to engage in coordinated interaction
depends on whether market conditions, on the whole, are conducive to reaching terms of coordination and
detecting and punishing deviations from those terms.

18
2.11 Conditions Conducive to
Reaching Terms of Coordination
Firms coordinating their interactions need not reach complex terms concerning the allocation of the
market output across firms or the level of the market prices but may, instead, follow simple terms such as
a common price, fixed price differentials, stable market shares, or customer or territorial restrictions. Terms
of coordination need not perfectly achieve the monopoly outcome in order to be harmful to consumers.
Instead, the terms of coordination may be imperfect and incomplete—inasmuch as they omit some market
participants, omit some dimensions of competition, omit some customers, yield elevated prices short of
monopoly levels, or lapse into episodic price wars—and still result in significant competitive harm. At some
point, however, imperfections cause the profitability of abiding by the terms of coordination to decrease and,
depending on their extent, may make coordinated interaction unlikely in the first instance.
Market conditions may be conducive to or hinder reaching terms of coordination. For example,
reaching terms of coordination may be facilitated by product or firm homogeneity and by existing practices
among firms, practices not necessarily themselves antitrust violations, such as standardization of pricing or
product variables on which firms could compete. Key information about rival firms and the market may also
facilitate reaching terms of coordination. Conversely, reaching terms of coordination may be limited or
impeded by product heterogeneity or by firms having substantially incomplete information about the
conditions and prospects of their rivals’ businesses, perhaps because of important differences among their
current business operations. In addition, reaching terms of coordination may be limited or impeded by firm
heterogeneity, for example, differences in vertical integration or the production of another product that tends
to be used together with the relevant product.
2.12 Conditions Conducive to
Detecting and Punishing Deviations
Where market conditions are conducive to timely detection and punishment of significant deviations,
a firm will find it more profitable to abide by the terms of coordination than to deviate from them. Deviation
from the terms of coordination will be deterred where the threat of punishment is credible. Credible
punishment, however, may not need to be any more complex than temporary abandonment of the terms of
coordination by other firms in the market.

19
But excess capacity in the hands of non-maverick firms may be a potent weapon with which to punish deviations from the terms of
coordination.
19
Where detection and punishment likely would be rapid, incentives to deviate are diminished and
coordination is likely to be successful. The detection and punishment of deviations may be facilitated by
existing practices among firms, themselves not necessarily antitrust violations, and by the characteristics of
typical transactions. For example, if key information about specific transactions or individual price or output
levels is available routinely to competitors, it may be difficult for a firm to deviate secretly. If orders for the
relevant product are frequent, regular and small relative to the total output of firm in a market, it may be
difficult for the firm to deviate in a substantial way without the knowledge of rivals and without the
opportunity for rivals to react. If demand or cost fluctuations are relatively infrequent and small, deviations
may be relatively easy to deter.
By contrast, where detection or punishment is likely to be slow, incentives to deviate are enhanced and
coordinated interaction is unlikely to be successful. If demand or cost fluctuations are relatively frequent and
large, deviations may be relatively difficult to distinguish from these other sources of market price
fluctuations, and, in consequence, deviations may be relatively difficult to deter.
In certain circumstances, buyer characteristics and the nature of the procurement process may affect
the incentives to deviate from terms of coordination. Buyer size alone is not the determining characteristic.
Where large buyers likely would engage in long-term contracting, so that the sales covered by such contracts
can be large relative to the total output of a firm in the market, firms may have the incentive to deviate.
However, this only can be accomplished where the duration, volume and profitability of the business covered
by such contracts are sufficiently large as to make deviation more profitable in the long term than honoring
the terms of coordination, and buyers likely would switch suppliers.
In some circumstances, coordinated interaction can be effectively prevented or limited by maverick
firms—firms that have a greater economic incentive to deviate from the terms of coordination than do most
of their rivals (e.g., firms that are unusually disruptive and competitive influences in the market).
Consequently, acquisition of a maverick firm is one way in which a merger may make coordinated
interaction more likely, more successful, or more complete. For example, in a market where capacity
constraints are significant for many competitors, a firm is more likely to be a maverick the greater is its
excess or divertable capacity in relation to its sales or its total capacity, and the lower are its direct and
opportunity costs of expanding sales in the relevant market. This is so because a firm’s incentive to deviate
19

20
Similarly, in a market where product design or quality is significant, a firm is more likely to be an effective maverick the greater is the sales
potential of its products among customers of its rivals, in relation to the sales it would obtain if it adhered to the terms of coordination. The
likelihood of expansion responses by a maverick will be analyzed in the same fashion as uncommitted entry or committed entry (see Sections
1.3 and 3) depending on the significance of the sunk costs entailed in expansion.
21
Similarly, in some markets sellers are primarily distinguished by their relative advantages in serving different buyers or groups of buyers, and
buyers negotiate individually with sellers. Here, for example, sellers may formally bid against one another for the business of a buyer, or
each buyer may elicit individual price quotes from multiple sellers. A seller may find it relatively inexpensive to meet the demands of
particular buyers or types of buyers, and relatively expensive to meet others’ demands. Competition, again, may be localized: sellers compete
more directly with those rivals having similar relative advantages in serving particular buyers or buyer groups. For example, in open outcry
auctions, price is determined by the cost of the second lowest cost seller. A merger involving the first and second lowest-cost sellers could
cause prices to rise to the constraining level of the next lowest-cost seller.
20
from price-elevating and output-limiting terms of coordination is greater the more the firm is able profitably
to expand its output as a proportion of the sales it would obtain if it adhered to the terms of coordination and
the smaller is the base of sales on which it enjoys elevated profits prior to the price cutting deviation. A
20
firm also may be maverick if it has an unusual ability secretly to expand its sales in relation to the sales it
would obtain if it adhered to the terms of coordination. This ability might arise from opportunities to expand
captive production for a downstream affiliate.
2.2Lessening of Competition
Through Unilateral Effects
A merger may diminish competition even if it does not lead to increased likelihood of successful
coordinate interaction, because merging firms may find it profitable to alter their behavior unilaterally
following the acquisition by elevating price and suppressing output. Unilateral competitive effects can arise
in a variety of different settings. In each setting, particular other factors describing the relevant market affect
the likelihood of unilateral competitive effects. The settings differ by the primary characteristics that
distinguish firms and shape the nature of their competition.
2.21 Firms Distinguished Primarily by
Differentiated Products
In some markets the products are differentiated, so that products sold by different participants in the
market are not perfect substitutes for one another. Moreover, different products in the market may vary
in the degree of their substitutability for one another. In this setting, competition may be non-uniform (i.e.,
localized), so that individual sellers compete more directly with those rivals selling closer substitutes.
21
A merger between firms in a market for differentiated products may diminish competition by enabling
the merged firm to profit by unilaterally raising the price of one or both products above the premerger level.
Some of the sales loss due to the price rise merely will be diverted to the product of the merger partner and,

22
Information about consumers’ actual first and second product choices may be provided by marketing surveys, information from bidding
structures, or normal course of business documents from industry participants.
21
depending on relative margins, capturing such sales loss through merger may make the price increase
profitable even though it would not have been profitable premerger. Substantial unilateral price elevation
in a market for differentiated products requires that there be a significant share of sales in the market
accounted for byconsumers who regard the products of the merging firms as their first and second choices,
and that repositioning of the non-parties’ product lines to replace the localized competition lost through the
merger be unlikely. The price rise will be greater the closer substitutes are the products of the merging firms,
i.e., the more the buyers of one product consider the other product to be their next choice.
2.211 Closeness of the Products of the Merging Firms
The market concentration measures articulated in Section 1 may help assess the extent of the likely
competitive effect from a unilateral price elevation by the merged firm notwithstanding the fact that the
affected products are differentiated. The market concentration measures provide a measure of this effect
if each product’s market share is reflective of not only its relative appeal as a first choice to consumers of
the merging firms products but also its relative appeal as a second choice, and hence as a competitive
constraint to the first choice. Where this circumstance holds, market concentration data fall outside the
22
safeharbor regions of Section 1.5, and the merging firms have a combined market share of at least thirty-five
percent, the Agency will presume that a significant share of sales in the market are accounted for by
consumers who regard the products of the merging firms as their first and second choices.Purchasers
of one of the merging firms’ products may be more or less likely to make the other their second choice than
market shares alone would indicate. The market shares of the merging firms’ products may understate the
competitive effect of concern, when, for example, the products of the merging firms are relatively more
similar in their various attributes to one another than to other products in the relevant market. On the other
hand, the market shares alone may overstate the competitive effects of concern when, for example, the
relevant products are less similar in their attributes to one another than to other products in the relevant
market.
Where market concentration data fall outside the safeharbor regions of Section 1.5, the merging firms
have a combined market share of at least thirty-five percent, and where data on product attributes and
relative product appeal show that a significant share of purchasers of one merging firm’s product regard the
other as their second choice, then market share data may be relied upon to demonstrate that there is a

23
The timeliness and likelihood of repositioning responses will be analyzed using the same methodology as used in analyzing uncommitted
entry or committed entry (see Sections 1.3 and 3), depending on the significance of the sunk costs entailed in repositioning.
22
significant share of sales in the market accounted for by consumers who would be adversely affected by the
merger.
2.212 Ability of Rival Sellers to Replace Lost Competition
A merger is not likely to lead to unilateral elevation of prices of differentiated products if, in response
to such an effect, rival sellers likely would replace any localized competition lost through the merger by
repositioning their product lines.
23
In markets where it is costly for buyers to evaluate product quality, buyers who consider purchasing
from both merging parties may limit the total number of sellers they consider. If either of the merging firms
would be replaced in such buyers’ consideration by an equally competitive seller not formerly considered,
then the merger is not likely to lead to a unilateral elevation of prices.
2.22 Firms Distinguished Primarily by Their Capacities
Where products are relatively undifferentiated and capacity primarily distinguishes firms and shapes the
nature of their competition, the merged firm may find it profitable unilaterally to raise price and suppress
output. The merger provides the merged firm a larger base of sales on which to enjoy the resulting price rise
and also eliminates a competitor to which customers otherwise would have diverted their sales. Where the
merging firms have a combined market share of at least thirty-five percent, merged firms may find it
profitable to raise price and reduce joint output below the sum of their premerger outputs because the lost
markups on the foregone sales may be outweighed by the resulting price increase on the merged base of
sales.
This unilateral effect is unlikely unless a sufficiently large number of the merged firm’s customers would
not be able to find economical alternative sources of supply, i.e., competitors of the merged firm likely would
not respond to the price increase and output reduction by the merged firm with increases in their own outputs
sufficient in the aggregate to make the unilateral action of the merged firm unprofitable. Such non-party
expansion is unlikely if those firms face binding capacity constraints that could not be economically relaxed

24
The timeliness and likelihood of non-party expansion will be analyzed using the same methodology as used in analyzing uncommitted or
committed entry (see Sections 1.3 and 3) depending on the significance of the sunk costs entailed in expansion.
Supply responses that require less than one year and insignificant sunk costs to effectuate are analyzed as uncommitted entry in Section 1.3.
25
23
within two years or if existing excess capacity is significantly more costly to operate than capacity currently
in use.
24
3.Entry Analysis
3.0 Overview
A merger is not likely to create or enhance market power or to facilitate its exercise, if entry into the
market is so easy that market participants, after the merger, either collectively or unilaterally could not
profitably maintain a price increase above premerger levels. Such entry likely will deter an anticompetitive
merger in its incipiency, or deter or counteract the competitive effects of concern.Entry is that easy
if entry would be timely, likely, and sufficient in its magnitude, character and scope to deter or counteract
the competitive effects of concern. In markets where entry is that easy (i.e., where entry passes these tests
of timeliness, likelihood, and sufficiency), the merger raises no antitrust concern and ordinarily requires no
further analysis.
The committed entry treated in this Section is defined as new competition that requires expenditure of
significant sunk costs of entry and exit. The Agency employs a three step methodology to assess whether
25
committed entry would deter or counteract a competitive effect of concern.
The first step assesses whether entry can achieve significant market impact within a timely period. If
significant market impact would require a longer period, entry will not deter or counteract the competitive
effect of concern.
The second step assesses whether committed entry would be a profitable and, hence, a likely response
to a merger having competitive effects of concern. Firms considering entry that requires significant sunk
costs must evaluate the profitability of the entry on the basis of long term participation in the market, because
the underlying assets will be committed to the market until they are economically depreciated. Entry that
is sufficient to counteract the competitive effects of concern will cause prices to fall to their premerger levels
or lower. Thus, the profitability of such committed entry must be determined on the basis of premerger
market prices over the long-term.

Many of these phases may be undertaken simultaneously.
26
24
A merger having anticompetitive effects can attract committed entry, profitable and premerger prices,
that would not have occurred premerger at these same prices. But following the merger, the reduction in
industry output and increase in prices associated with the competitive effect of concern may allow the same
entry to occur without driving market prices below premerger levels. After a merger that results in
decreased output and increased prices, the likely sales opportunities available to entrants at premerger prices
will be larger than they were premerger, larger by the output reduction caused by the merger. If entry could
be profitable at premerger prices without exceeding the likely sales opportunities—opportunities that include
pre-existing pertinent factors as well as the merger-induced output reduction—then such entry is likely in
response to the merger.
The third step assesses whether timely and likely entry would be sufficient to return market prices to
their premerger levels. This end may be accomplished either through multiple entry or individual entry at a
sufficient scale. Entry may not be sufficient, even though timely and likely, where the constraints on
availability of essential assets, due to incumbent control, make it impossible for entry profitably to achieve
the necessary level of sales. Also, the character and scope of entrants’ products might not be fully
responsive to the localized sales opportunities created by the removal of direct competition among sellers
of differentiated products. In assessing whether entry will be timely, likely, and sufficient, the Agency
recognizes that precise and detailed information may be difficult or impossible to obtain. In such instances,
the Agency will rely on all available evidence bearing on whether entry will satisfy the conditions of
timeliness, likelihood, and sufficiency.
3.1 Entry Alternatives
The Agency will examine the timeliness, likelihood, and sufficiency of the means of entry (entry
alternatives) a potential entrant might practically employ, without attempting to identify who might be
potential entrants. An entry alternative is defined by the actions the firm must take in order to produce and
sell in the market. All phases of the entry effort will be considered, including, where relevant, planning,
design, and management; permitting, licensing, and other approvals; construction, debugging, and operation
of production facilities; and promotion (including necessary introductory discounts), marketing, distribution,
and satisfaction of customer testing and qualification requirements. Recent examples of entry, whether
26

27
Firms which have committed to entering the market prior to the merger generally will be included in the measurement of the market. Only
committed entry or adjustments to pre-existing entry plans that are induced by the merger will be considered as possibly deterring or
counteracting the competitive effects of concern.
28
Where conditions indicate that entry may be profitable at prices below premerger levels, the Agency will assess the likelihood of entry at
the lowest price at which such entry would be profitable.
29
The concept of minimum viable scale (“MVS”) differs from the concept of minimum efficient scale (“MES”). While MES is the smallest
scale at which average costs are minimized, MVS is the smallest scale at which average costs equal the premerger price.
The expected path of future prices, absent the merger, may be used if future price changes can be predicted with reasonable reliability.
30
25
successful or unsuccessful, may provide a useful starting point for identifying the necessary actions, time
requirements, and characteristics of possible entry alternatives.
3.2 Timeliness of Entry
In order to deter or counteract the competitive effects of concern, entrants quickly must achieve a
significant impact on price in the relevant market. The Agency generally will consider timely only those
committed entry alternatives that can be achieved within two years from initial planning to significant market
impact. Where the relevant product is a durable good, consumers, in response to a significant commitment
27
to entry, may defer purchases by making additional investments to extend the useful life of previously
purchased goods and in this way deter or counteract for a time the competitive effects of concern. In these
circumstances, if entry only can occur outside of the two year period, the Agency will consider entry to be
timely so long as it would deter or counteract the competitive effects of concern within the two year period
and subsequently.
3.3 Likelihood of Entry
An entry alternative is likely if it would be profitable at premerger prices, and if such prices could be
secured by the entrant. The committed entrant will be unable to secure prices at premerger levels if its
28
output is too large for the market to absorb without depressing prices further. Thus, entry is unlikely if the
minimum viable scale is larger than the likely sales opportunity available to entrants.
Minimum viable scale is the smallest average annual level of sales that the committed entrant must
persistently achieve for profitability at premerger prices. Minimum viable scale is a function of expected
29
revenues, based upon premerger prices, and all categories of costs associated with the entry alternative,
30

31
The minimum viable scale of an entry alternative will be relatively large when the fixed costs of entry are large, when the fixed costs of entry
are largely sunk, when the marginal costs of production are high at low levels of output, and when a plant is underutilized for a long time
because of delays in achieving market acceptance.
32
Five percent of total market sales typically is used because where a monopolist profitably would raise price by five percent or more across
the entire relevant market, it is likely that the accompanying reduction in sales would be no less than five percent.
33
Entrants’ anticipated share of growth in demand depends on incumbents’ capacity constraints and irreversible investments in capacity
expansion, as well as on the relative appeal, acceptability, and reputation of incumbents’ and entrants’ products to the new demand.
For example, in a bidding market where all bidders are on equal footing, the market share of incumbents will contract as a result of entry.
34
26
including an appropriate rate of return on invested capital given that entry could fail and sunk costs, if any,
will be lost.
31
Sources of sales opportunities available to entrants include: (a) the output reduction associated with the
competitive effect of concern, (b) entrants’ ability to capture a share of reasonably expected growth in
32
market demand, (c) entrants’ ability securely to divert sales from incumbents, for example, through vertical
33
integration or through forward contracting, and (d) any additional anticipated contraction in incumbents’
output in response to entry. Factors that reduce the sales opportunities available to entrants include: (a)
34
the prospect that an entrant will share in a reasonably expected decline in market demand, (b) the exclusion
of an entrant from a portion of the market over the long term because of vertical integration or forward
contracting by incumbents, and (c) any anticipated sales expansion by incumbents in reaction to entry, either
generalized or targeted at customers approached by the entrant, that utilizes prior irreversible investments
in excess production capacity. Demand growth or decline will be viewed as relevant only if total market
demand is projected to experience long-lasting change during at least the two year period following the
competitive effect of concern.
3.4 Sufficiency of Entry
Inasmuch as multiple entry generally is possible and individual entrants may flexibly choose their scale,
committed entry generally will be sufficient to deter or counteract the competitive effects of concern
whenever entry is likely under the analysis of Section 3.3. However, entry, although likely, will not be
sufficient if, as a result of incumbent control, the tangible and intangible assets required for entry are not
adequately available for entrants to respond fully to their sales opportunities. In addition, where the
competitive effect of concern is not uniform across the relevant market, in order for entry to be sufficient,
the character and scope of entrants’ products must be responsive to the localized sales opportunities that
include the output reduction associated with the competitive effect of concern. For example, where the
concern is unilateral price elevation as a result of a merger between producers of differentiated products,

35
The Agency will not deem efficiencies to be merger-specific if they could be preserved by practical alternatives that mitigate competitive
concerns, such as divestiture or licensing. If a merger affects not whether but only when an efficiency would be achieved, only the timing
advantage is a merger-specific efficiency.
27
entry, in order to be sufficient, must involve a product so close to the products of the merging firms that the
merged firm will be unable to internalize enough of the sales loss due to the price rise, rendering the price
increase unprofitable.
4.Efficiencies
Competition usually spurs firms to achieve efficiencies internally. Nevertheless, mergers have the
potential to generate significant efficiencies by permitting a better utilization of existing assets, enabling the
combined firm to achieve lower costs in producing a given quantity and quality than either firm could have
achieved without the proposed transaction. Indeed, the primary benefit of mergers to the economy is their
potential to generate such efficiencies.
Efficiencies generated through merger can enhance the merged firm’s ability and incentive to compete,
which may result in lower prices, improved quality, enhanced service, or new products. For example,
merger-generated efficiencies may enhance competition by permitting two ineffective (e.g., high cost)
competitors to become one effective (e.g., lower cost) competitor. In a coordinated interaction context (see
Section 2.1), marginal cost reductions may make coordination less likely or effective by enhancing the
incentive of a maverick to lower price or by creating a new maverick firm. In a unilateral effects context (see
Section 2.2), marginal cost reductions may reduce the merged firm’s incentive to elevate price. Efficiencies
also may result in benefits in the form of new or improved products, and efficiencies may result in benefits
even when price is not immediately and directly affected. Even when efficiencies generated through merger
enhance a firm’s ability to compete, however, a merger may have other effects that may lessen competition
and ultimately may make the merger anticompetitive.
The Agency will consider only those efficiencies likely to be accomplished with the proposed merger
and unlikely to be accomplished in the absence of either the proposed merger or another means having
comparable anticompetitive effects. These are termed merger-specific efficiencies. Only alternatives
35
that are practical in the business situation faced by the merging firms will be considered in making this
determination; the Agency will not insist upon a less restrictive alternative that is merely theoretical.

36
Section 7 of the Clayton Act prohibits mergers that may substantially lessen competition “in any line of commerce . . . in any section of the
country.” Accordingly, the Agency normally assesses competition in each relevant market affected by a merger independently and normally
will challenge the merger if it is likely to be anticompetitive in any relevant market. In some cases, however, the Agency in its prosecutorial
discretion will consider efficiencies not strictly in the relevant market, but so inextricably linked with it that a partial divestiture or other
remedy could not feasibly eliminate the anticompetitive effect in the relevant market without sacrificing the efficiencies in the other
market(s). Inextricably linked efficiencies rarely are a significant factor in the Agency’s determination not to challenge a merger. They are
most likely to make a difference when they are great and the likely anticompetitive effect in the relevant market(s) is small.
37
The result of this analysis over the short term will determine the Agency’s enforcement decision in most cases. The Agency also will consider
the effects of cognizable efficiencies with no short-term, direct effect on prices in the relevant market. Delayed benefits from efficiencies
(due to delay in the achievement of, or the realization of consumer benefits from, the efficiencies) will be given less weight because they are
less proximate and more difficult to predict.
28
Efficiencies are difficult to verify and quantify, in part because much of the information relating to
efficiencies is uniquely in the possession of the merging firms. Moreover, efficiencies projected reasonably
and in good faith by the merging firms may not be realized. Therefore, the merging firms must substantiate
efficiency claims so that the Agency can verify by reasonable means the likelihood and magnitude of each
asserted efficiency, how and when each would be achieved (and any costs of doing so), how each would
enhance the merged firm’s ability and incentive to compete, and why each would be merger-specific.
Efficiency claims will not be considered if they are vague or speculative or otherwise cannot be verified by
reasonable means.
Cognizable efficiencies are merger-specific efficiencies that have been verified and do not arise from
anticompetitive reductions in output or service. Cognizable efficiencies are assessed net of costs produced
by the merger or incurred in achieving those efficiencies.
The Agency will not challenge a merger if cognizable efficiencies are of a character and magnitude such
that the merger is not likely to be anticompetitive in any relevant market. To make the requisite
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determination, the Agency considers whether cognizable efficiencies likely would be sufficient to reverse the
merger’s potential to harm consumers in the relevant market, e.g., by preventing price increases in that
market. In conducting this analysis, the Agency will not simply compare the magnitude of the cognizable
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efficiencies with the magnitude of the likely harm to competition absent the efficiencies. The greater the
potential adverse competitive effect of a merger—as indicated by the increase in the HHI and post-merger
HHI from Section 1, the analysis of potential adverse competitive effects from Section 2, and the timeliness,
likelihood, and sufficiency of entry from Section 3—the greater must be cognizable efficiencies in order for
the Agency to conclude that the merger will not have an anticompetitive effect in the relevant market. When
the potential adverse competitive effect of a merger is likely to be particularly large, extraordinarily great
cognizable efficiencies would be necessary to prevent the merger from being anticompetitive.

11 U.S.C. §§ 1101–74 (1988).
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Any offer to purchase the assets of the failing firm for a price above the liquidation value of those assets—the highest values use outside the
relevant market or equivalent offer to purchase the stock of the failing firm—will be regarded as a reasonable offer.
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In the Agency’s experience, efficiencies are most likely to make a difference in merger analysis when
the likely adverse competitive effects, absent the efficiencies, are not great. Efficiencies almost never justify
a merger to monopoly or near-monopoly.
The Agency has found that certain types of efficiencies are more likely to be cognizable and substantial
than others. For example, efficiencies resulting from shifting production among facilities formerly owned
separately, which enable the merging firms to reduce the marginal cost of production, are more likely to be
susceptible to verification, merger-specific, and substantial, and are less likely to result from anticompetitive
reductions in output. Other efficiencies, such as those relating to research and development, are potentially
substantial but are generally less susceptible to verification and may be the result of anticompetitive output
reductions. Yet others, such as those relating to procurement, management, or capital cost are less likely
to be merger-specific or substantial, or may not be cognizable for other reasons.
5.Failure and Exiting Assets
5.0 Overview
Notwithstanding the analysis of Sections 1–4 of the Guidelines, a merger is not likely to create or
enhance market power or to facilitate its exercise, if imminent failure, as defined below, of one of the merging
firms would cause the assets of that firm to exit the relevant market. In such circumstances, post-merger
performance in the relevant market may be no worse than market performance had the merger been blocked
and the assets left the market.
5.1 Failing Firm
A merger is not likely to create or enhance market power or facilitate its exercise if the following
circumstances are met: 1) the allegedly failing firm would be unable to meet its financial obligations in the near
future; 2) it would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act; 3) it
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has made unsuccessful good-faith efforts to elicit reasonable alternative offers of acquisition of the assets of
the failing firm that would both keep its tangible and intangible assets in the relevant market and pose a less
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severe danger to competition than does the proposed merger; and 4) absent the acquisition, the assets of
the failing firm would exit the relevant market.
5.2 Failing Division
A similar argument can be made for “failing” divisions as for failing firms. First, upon applying
appropriate cost allocation rules, the division must have a negative cash flow on an operating basis. Second,
absent the acquisition, it must be that the assets of the division would exit the relevant market in the near
future if not sold. Due to the ability of the parent firm to allocate costs, revenues, and intracompany
transactions among itself and its subsidiaries and divisions, the Agency will require evidence, not based solely
on management plans that could be prepared solely for the purpose of demonstrating negative cash flow or
the prospect of exit from the relevant market. Third, the owner of the failing division also must have
complied with the competitively preferable purchaser requirement of Section 5.1.