Abstract

As antitrust enforcers have increased their efforts to block vertical mergers, courts have been forced to grapple with the challenges of predicting the anticompetitive effects of vertical integration, as required by Section 7 of the Clayton Act. Merging parties have complicated this task by “litigating the fix”—proffering evidence that they have designed measures to prevent anticompetitive outcomes outside the consent decree process. Because the anticompetitive problems of vertical mergers do not lend themselves to structural relief, vertically-merging parties have instead proposed fixes aimed at constraining the parties’ post-merger conduct. Such conduct fixes come in the form of contractual agreements with rivals that would ostensibly limit the merged firm’s ability to raise rivals’ costs or foreclose them from the market. Courts presiding over vertical merger trials have accepted such conduct fixes at face-value, failing to question whether private actors will be adequately incentivized to perform and enforce conduct fixes without government oversight.

This Note urges courts to change course and adopt a presumption against conduct fixes. Such a presumption follows from the basic principle that firms will evade economically irrational contractual commitments where the benefits of performance exceed the costs. Conduct fixes are economically irrational for two principal reasons. First, breaching such agreements is profit-maximizing for a firm with market power, even after accounting for its obligation to pay compensatory damages; and second, rival firms may benefit more by entering into settlements splitting the supracompetitive profits of the merged firm than by seeking actual performance of the contract to restore competition. Conduct fixes are therefore unlikely to constrain vertically-integrated firms with market power from harming competition, thereby undermining the purpose of Section 7.

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