[Federal Register Volume 80, Number 94 (Friday, May 15, 2015)]
[Notices]
[Pages 27954-27961]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11721]


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FEDERAL TRADE COMMISSION

[File No. 141-0235]


ZF Friedrichshafen AG and TRW Automotive Holdings Corp; Analysis 
of Proposed Consent Order To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the draft complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before June 5, 2015.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/zftrwautomativeconsent online or on 
paper, by following the instructions in the Request for Comment part of 
the SUPPLEMENTARY INFORMATION section below. Write ``ZF Friedrichshafen 
AG's and TRW Automotive Holdings Corp.--Consent Agreement; File No. 
141-0235'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/zftrwautomativeconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``ZF Friedrichshafen AG's and TRW Automotive Holdings 
Corp.--Consent Agreement; File No. 141-0235'' on your comment and on 
the envelope, and mail your comment to the following address: Federal 
Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., 
Suite CC-5610 (Annex D), Washington, DC 20580, or deliver your comment 
to the following address: Federal Trade Commission, Office of the 
Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 
5610 (Annex D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Stephen Antonio, Bureau of 
Competition, (202-326-2536), 600 Pennsylvania Avenue NW., Washington, 
DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent orders to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for May 5, 2015), on the World Wide Web, at 
http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before June 5, 2015. 
Write ``ZF Friedrichshafen AG's and TRW Automotive Holdings Corp.--
Consent Agreement; File No. 141-0235'' on your comment. Your comment--
including your name and your state--will be placed on the public record 
of this proceeding, including, to the extent practicable, on the public 
Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a 
matter of discretion, the Commission tries to remove individuals' home 
contact information from comments before placing them on the Commission 
Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which . . . is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/zftrwautomativeconsent by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``ZF Friedrichshafen AG's 
and TRW Automotive Holdings Corp.--Consent Agreement; File No. 141-
0235'' on your comment and on the envelope, and mail your comment to 
the following address: Federal Trade Commission, Office of the 
Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 
20024. If possible, submit your paper comment to the Commission by 
courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before June 5, 2015. For information on the 
Commission's privacy policy, including routine uses permitted by the 
Privacy Act, see http://www.ftc.gov/ftc/privacy.htm.

[[Page 27955]]

Analysis of Agreement Containing Consent Order To Aid Public Comment

Introduction

    The Federal Trade Commission (``Commission'') has accepted from ZF 
Friedrichshafen AG (``ZF'') and TRW Automotive Holdings Corp. 
(``TRW''), subject to final approval, an Agreement Containing Consent 
Order (``Consent Agreement'') designed to remedy the anticompetitive 
effects resulting from ZF's proposed acquisition of TRW.
    Pursuant to an Agreement and Plan of Merger dated September 15, 
2014, the parties agreed that ZF would acquire TRW for $105.60 per 
share in an all-cash deal valued at approximately $12.4 billion (``the 
Acquisition''). The proposed Acquisition would result in a duopoly in 
the heavy vehicle tie rod market. The Commission's Complaint alleges 
that the proposed Acquisition, if consummated, would violate Section 7 
of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the FTC 
Act, as amended, 15 U.S.C. 45, by substantially lessening competition 
in the market for heavy vehicle tie rods in North America.
    Under the terms of the proposed Decision and Order (``Order'') 
contained in the Consent Agreement, the parties are required to divest 
TRW's Linkage and Suspension Business in a manner, and to an acquirer, 
that meets Commission approval. The divestiture package includes five 
manufacturing facilities in North America and Europe, along with 
related assets including intellectual property. The acquirer also has 
the option to enter into transitional services and supply agreements. 
The Consent Agreement provides an acquirer with everything needed to 
compete effectively in the North American heavy vehicle tie rod market. 
The parties must complete the divestiture within six months of 
executing the Consent Agreement.
    The Consent Agreement has been placed on the public record for 30 
days to solicit comments from interested persons. Comments received 
during this period will become part of the public record. After 30 
days, the Commission will again review the Consent Agreement and the 
comments received, and decide whether it should withdraw from the 
Consent Agreement, modify it, or make it final.

The Parties

    Headquartered in Friedrichshafen, Germany, ZF is a privately held 
global automotive and industrial products manufacturer. ZF makes light 
and heavy vehicle components for the powertrain, chassis, and 
driveline. ZF designs, manufacturers, and sells heavy vehicle tie rods, 
amongst several other products, in its chassis division.
    Headquartered in Livonia, Michigan, TRW sells chassis systems, 
electronic systems, passive occupant safety systems, and other 
automotive components. Like ZF, TRW designs, manufactures, and sells 
heavy vehicle tie rods.

The Relevant Product and Market Structure

    The relevant line of commerce in which to analyze the effects of 
the Acquisition is heavy vehicle tie rods. A heavy vehicle is generally 
defined as one that weighs six tons or more, and a tie rod is a rigid 
connecter that links a vehicle's individual wheels with the steering 
control mechanism. Customers and other market participants did not 
identify any substitutes for heavy vehicle tie rods.
    North America is the relevant geographic market in which to analyze 
the effects of the Acquisition on the heavy vehicle tie rod market. The 
size and weight of heavy vehicle tie rods generally make it 
uneconomical to ship them long distances. Customers interviewed 
primarily consider manufacturers in North America, and have found more 
distant firms uncompetitive for reasons including: (1) Price; (2) 
logistics; and (3) quality. Therefore, North America is the relevant 
geographic market.
    The market for heavy vehicle tie rods in North America is highly 
concentrated. It is served primarily by ZF, TRW, and USK Internacional 
S.A. DE C.V. (``Urresko''). These three firms have a share of nearly 
99% of the market based on unit sales. The merger would reduce the 
number of competitors from three to two, and increase the Herfindahl-
Hirschman Index from 4,218 to 5,046, an increase of 828.

Entry

    Entry into the North American heavy vehicle tie rod market is not 
likely to deter or counteract any anticompetitive effects of the 
proposed Acquisition. Entry is unlikely in light of the relatively 
small market size, strong position of incumbents, high capital costs, 
switching costs, and knowledge barriers that exist. The parties did not 
identify any likely entrants, and those firms best situated for entry--
manufacturers of related heavy vehicle components--expressed no 
interest in entering the North American heavy vehicle tie rod market.

Effects of the Acquisition

    The proposed Acquisition would increase the likelihood of 
coordinated interaction among the remaining competitors in the North 
American heavy vehicle tie rod market. The combined company would have 
only one remaining significant competitor in North America, Urresko. 
Reducing the number of competitors from three to two would eliminate 
much uncertainty and make it easier for the remaining firms to reach 
agreement on terms of coordination, whether the coordination focuses on 
customer allocation, price, or some other aspect of competition.
    Additionally, the proposed Acquisition would eliminate direct 
competition between ZF and TRW, resulting in the increased probability 
that customers would pay higher prices for heavy vehicle tie rods. In 
the past, customers have been able to use competition between ZF and 
TRW to obtain better prices by obtaining competing bids. Customers have 
also switched between ZF and TRW. That competition would be lost absent 
the merger.

The Consent Agreement

    The Consent Agreement eliminates the competitive concerns raised by 
ZF's proposed acquisition of TRW by requiring the parties to divest 
TRW's North American and European Linkage and Suspension Business 
(``the L&S Business''). The proposed divestiture includes everything 
needed for an acquirer to compete effectively in the North American 
market for heavy vehicle tie rods, and also includes additional 
products that ensure the business will be viable. Given the robust 
nature of the divested business, the Commission is confident that a 
post-order divestiture is sufficient to protect its interest in 
restoring competition.
    Pursuant to the Order, the parties are required, no later than six 
months from execution of the Consent Agreement, to divest the L&S 
Business to a Commission-approved acquirer. That business consists of 
both heavy and light vehicle components, and includes--in addition to 
tie rods--control arms, ball joints, stabilizer links, conventional 
steering linkages, drag links, V-links, radius rods, and I-shafts. The 
divestiture buyer will receive all rights and assets relating to the 
L&S Business, including five TRW manufacturing facilities, Portland 
(U.S.), Tillsonburg-Plant 2 (Canada), St. Catharines (Canada), Dacice 
(Czech Republic), and Krefeld-Gellep (Germany), as well as leased space 
previously occupied by L&S research

[[Page 27956]]

and development at TRW's Dusseldorf Tech Center. The divested assets 
also include intellectual property rights as well as all books, 
records, and confidential business information related to the L&S 
Business.
    To ensure that the divestiture is successful, the Order requires 
the parties to provide transition services such as logistical and 
administrative support at the option of the acquirer. Moreover, the 
acquirer will have the option to enter into a transition supply 
agreement with the parties for key manufacturing inputs necessary to 
perform existing customer contracts. The Consent Agreement also 
includes other standard terms designed to ensure the viability of the 
divestiture, including requirements that the parties assist the 
acquirer in hiring the existing work force of the business, and refrain 
from soliciting those employees for up to two years.
    Given the robustness of the divested business and the protections 
contained in the Order, the Commission is confident that a post-order 
divestiture will be sufficient to preserve competition. The L&S 
Business has been run largely as a standalone business within TRW, and 
potential buyers have confirmed that the divested assets include 
everything necessary to compete effectively as a viable business. 
Similarly, potential customers have confirmed that an acquirer of the 
L&S Business would be a workable option as a supplier.
    To ensure compliance with the Order, the Commission will appoint an 
Interim Monitor to oversee ZF's and TRW's performance of their 
obligations pursuant to the Consent Agreement, and to keep the 
Commission informed about the status of the divestiture. The Order also 
allows the Commission to appoint a Divestiture Trustee to accomplish 
the divestiture if the parties fail to divest within the required 
timeframe. Lastly, the Consent Agreement contains standard reporting 
requirements and terminates in ten years.
    The Commission has also issued an Order to Hold Separate and 
Maintain Assets to protect the assets until they are divested. During 
the hold separate period, the parties must fund the business' 
operations, including capital projects, according to existing plans. To 
ensure compliance with the Hold Separate Order, a Commission-approved 
Hold Separate Monitor will oversee the L&S Business during the interim 
period.

Opportunity for Public Comment

    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement to aid the Commission in determining whether it 
should make the Consent Agreement final. This analysis is not an 
official interpretation of the proposed Consent Agreement and does not 
modify its terms in any way.

    By direction of the Commission, Commissioner Wright dissenting.
Donald S. Clark,
Secretary.

Statement of the Federal Trade Commission

In the Matter of ZF Friedrichshafen AG and TRW Automotive Holdings 
Corp.

    The Commission has issued a proposed complaint and consent order to 
address narrow competitive concerns associated with ZF Friedrichshafen 
AG's proposed $12.4 billion acquisition of TRW Automotive Holdings 
Corp.\1\ Specifically, we have reason to believe that this proposed 
acquisition is likely to substantially reduce competition in the 
manufacture and sale of heavy vehicle tie rods in North America. The 
proposed remedy, which involves a divestiture of TRW's linkage and 
suspension business in North America and Europe, addresses our 
competitive concerns and will bolster the viability of the divested 
business in the hands of a buyer, without eliminating efficiencies that 
otherwise might arise from the combination of the two companies.
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    \1\ This statement reflects the views of Chairwoman Ramirez and 
Commissioners Brill, Ohlhausen, and McSweeny.
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    ZF and TRW are global automotive parts manufacturers. Both 
companies manufacture and sell a wide variety of components for 
discrete systems within a motor vehicle such as the chassis, 
powertrain, and suspension systems. They each have production 
facilities located throughout the United States, Canada, and Mexico.
    The proposed transaction will create the second-largest global auto 
parts supplier. Our competitive concerns arise from a limited aspect of 
the proposed combination, namely, its likely effect in the market for 
the manufacture and sale of heavy vehicle tie rods for customers in 
North America. Tie rods are part of a motor vehicle's steering and 
linkage system; they are rigid connectors that link the wheels to the 
vehicle's steering control mechanism. To perform their intended 
function within the linkage systems of vehicles weighing six tons or 
more, these tie rods have to be large (approximately three to six feet 
long) and heavy (weighing approximately 50 pounds). This means that tie 
rods designed for light vehicles are not practical substitutes since 
they would be too small and light and therefore not as strong 
structurally. At the same time, tie rods designed for much heavier, 
industrial vehicles (like mining vehicles weighing hundreds of tons) 
would not be substitutes either.
    Because of their weight, it is not economical to ship heavy vehicle 
tie rods over long distances. For this reason, North American customers 
primarily consider manufacturers with production facilities in the 
United States, Canada, and Mexico and generally do not regard suppliers 
outside of North America as viable options for reasons of price, 
logistics, and quality. As a result, ZF and TRW, together with a 
Mexican firm, USK Internacional, S.A. de C.V. (``Urresko''), account 
for virtually all (99%) of the sales of heavy vehicle tie rods in North 
America. We estimate the market shares of ZF, TRW, and Urresko to be 
23%, 18%, and 58%, respectively. Fringe competitors hold the remaining 
1% market share.
    The parties' proposed combination will therefore reduce the number 
of significant competitors in the relevant market from three to two and 
substantially increase concentration in an already highly concentrated 
market.\2\ Based on this increase in concentration and current market 
conditions, we believe the transaction is likely to produce substantial 
anticompetitive effects in the relevant market, in particular, by 
increasing the potential for coordination. Furthermore, there is 
unlikely to be any entry that would alleviate our competitive concerns. 
The small market size, the strong position of the incumbents, switching 
costs, and capital and knowledge barriers, among other factors, would 
more than likely deter North American manufacturers of related 
automotive parts--the most logical candidates for entry--from expanding 
their product offerings to include heavy vehicle tie rods. 
Consequently, we have reason to believe that the proposed combination 
would substantially lessen competition in the relevant market and harm 
customers and consumers, thereby violating Section 7 of the Clayton 
Act.
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    \2\ The proposed transaction would increase the Herfindahl-
Hirschman Index (``HHI'') in the relevant market from 4,218 to 
5,046. The threshold at which a market is considered ``highly 
concentrated'' under the Merger Guidelines is 2,500. See U.S. Dep't 
of Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines Sec.  
5.3 (2010).
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    In light of the foregoing, we respectfully disagree with 
Commissioner Wright's assertions that we lack a ``credible basis'' on 
which to conclude that the merger may enhance

[[Page 27957]]

the risk of coordination and that our action is otherwise inconsistent 
with the 2010 Horizontal Merger Guidelines.\3\ Under the 2010 
Guidelines, substantial increases in concentration caused by a merger 
rightly continue to play an important role in our merger analysis.\4\ 
They do so for the simple reason that highly concentrated markets are 
more conducive to anticompetitive outcomes than less concentrated 
markets.\5\ Accordingly, the lens we apply to the evidence in a merger 
that reduces the number of firms in a market to three or two is, and 
should be, different than the lens we apply to a merger that reduces 
the number of firms to seven or six. Where, as here, a proposed merger 
significantly increases concentration in an already highly concentrated 
market, a presumption of competitive harm is justified under both the 
Guidelines and well-established case law.\6\
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    \3\ Dissenting Statement of Commissioner Joshua D. Wright at 3-
4.
    \4\ See Carl Shapiro, The 2010 Horizontal Merger Guidelines: 
From Hedgehog to Fox in Forty Years, 77 Antitrust L.J. 701 (2010) 
(``Thus, like the fox, the 2010 Guidelines embrace multiple methods. 
But this certainly does not mean they reject the use of market 
concentration to predict competitive effects, as can be seen in 
Sections 2.1.3 and 5.''). As Commissioner Wright acknowledges, ``The 
predictive power of market share and market concentration data is 
informed by economic theory and available empirical evidence.'' 
Wright Dissent at 7.
    \5\ See, e.g., Steven C. Salop, The Evolution and Vitality of 
Merger Presumptions: A Decision-Theoretic Approach 11 (Georgetown 
Law Faculty Publications and Other Works, Working Paper No. 1304, 
2014), available at http://scholarship.law.georgetown.edu/facpub/1304 (``[V]arious theories of oligopoly conduct--both static and 
dynamic models of firm interaction--are consistent with the view 
that competition with fewer significant firms on average is 
associated with higher prices. . . . Accordingly, a horizontal 
merger reducing the number of rivals from four to three, or three to 
two, would be more likely to raise competitive concerns than one 
reducing the number from ten to nine, ceteris paribus.''); Steffen 
Huck, et al., Two Are Few and Four Are Many: Number Effects from 
Experimental Oligopolies, 53 J. Econ. Behavior & Org. 435, 443 
(2004) (testing the frequency of collusive outcomes in Cournot 
oligopolies and finding ``clear evidence that there is a qualitative 
difference between two and four or more firms''); Timothy F. 
Bresnahan & Peter C. Reiss, Entry and Competition in Concentrated 
Markets, 99 J. Pol. Econ. 977, 1006 (1991) (finding, in a study of 
tire prices, that ``[m]arkets with three or more dealers have lower 
prices than monopolists or duopolists,'' and noting that, ``while 
prices level off between three and five dealers, they are higher 
than unconcentrated market prices'').
    \6\ See Merger Guidelines Sec.  2.1.3 (``Mergers that cause a 
significant increase in concentration and result in highly 
concentrated markets are presumed to be likely to enhance market 
power, but this presumption can be rebutted by persuasive evidence 
showing that the merger is unlikely to enhance market power.''); 
Chicago Bridge & Iron Co., N.V. v. FTC, 534 F.3d 410, 423 (5th Cir. 
2008) (``Typically, the Government establishes a prima facie case by 
showing that the transaction in question will significantly increase 
market concentration, thereby creating a presumption that the 
transaction is likely to substantially lessen competition.''); FTC 
v. H.J. Heinz Co., 246 F.3d 708, 716 (D.C. Cir. 2001) (merger to 
duopoly creates a rebuttable presumption of anticompetitive harm 
through direct or tacit coordination).
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    Despite Commissioner Wright's insistence to the contrary, our 
inquiry extended beyond consideration of market concentration and 
application of the Guidelines presumption of competitive harm. We also 
examined the transaction's likely anticompetitive effects, and are 
satisfied that there is sufficient evidence to support the issuance of 
our complaint and proposed consent order.\7\ As noted above, we are 
particularly concerned that the transaction is likely to enhance the 
potential for coordination.\8\ As set forth in the Guidelines, the 
Commission is likely to challenge a merger under a coordinated effects 
theory if: ``(1) The merger would significantly increase concentration 
and lead to a moderately or highly concentrated market; (2) that market 
shows signs of vulnerability to coordinated conduct [ ]; and (3) the 
[Commission has] a credible basis on which to conclude that the merger 
may enhance that vulnerability.'' \9\ We have reason to believe that 
all three factors are satisfied here.\10\
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    \7\ The investigation in this matter did not proceed to a full 
phase because the parties proposed a remedy soon after second 
requests had been issued. Consequently, the quantum of evidence is 
not the same as if the agency had completed a full-phase 
investigation. But that does not mean, as Commissioner Wright 
suggests, that we are lowering our reason-to-believe standard when a 
remedy is proposed during the course of an investigation. Wright 
Dissent at 9. We believe our complaint is well supported and meets 
the same reason-to-believe standard we always apply. We simply do 
not think it would have been appropriate to subject the parties to 
the added expense and delay of a full-phase investigation. It would 
not have been a good use of Commission resources either.
    \8\ Although coordinated effects is the primary basis upon which 
we found reason to believe that the proposed transaction violates 
Section 7 of the Clayton Act, we also found evidence of unilateral 
effects, namely, that in the past, customers have solicited 
competing bids from ZF and TRW to obtain better prices, and have 
switched between ZF and TRW as their preferred supplier.
    \9\ Merger Guidelines Sec.  7.1.
    \10\ 15 U.S.C. 45(b) (2013).
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    First, as noted above, the proposed transaction results in a highly 
concentrated relevant market.\11\ Second, the market is susceptible to 
coordinated conduct, as evidenced by several recent cases of collusion 
in the auto parts industry.\12\ Third, by reducing the number of 
significant competitors to only two, the merger would decrease the 
impediments to reaching common terms of coordination and make it easier 
to monitor compliance with, and retaliate against potential deviation 
from, a coordinated scheme. Specifically, as remaining duopolists with 
nearly equal shares (41% and 58%, respectively), the combined firm and 
Urresko would have greater incentives to take advantage of a market 
with relatively few customers that purchase homogeneous products 
through individual purchase orders rather than long-term supply 
contracts. They would also find it easier to divide customers and 
monitor their allocations.
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    \11\ See Shapiro, supra note 4, at 708 (``In particular, as the 
revised Guidelines explain, the Agencies place considerable weight 
on HHI measures in cases involving coordinated effects.'').
    \12\ Among the Antitrust Division's recent prosecutions of 
companies and individuals in the automotive parts industry for 
price-fixing and bid-rigging is an indictment involving TRW in an 
alleged conspiracy for seat belts, air bags, and steering wheels. 
See Plea Agmt., United States v. TRW Deutschland Holding GMBH, Crim. 
No. 12-20491 (E.D. Mich. Sept. 25, 2012), available at http://www.justice.gov/atr/cases/f287600/287657.pdf. See generally Merger 
Guidelines Sec.  7.2 (``Previous collusion or attempted collusion in 
another product market may also be given substantial weight if the 
salient characteristics of that other market at the time of the 
collusion are closely comparable to those in the relevant 
market.'').
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    Our concern that the merger may enhance the relevant market's 
vulnerability to coordination is backed by the well-accepted view that 
markets with only two or three firms are more conducive to 
anticompetitive outcomes than markets with four or more firms.\13\ The 
proposed merger would eliminate a third competitor and create greater 
symmetry between the two remaining firms.
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    \13\ See Salop; Huck et al.; Bresnahan & Reiss, supra note 5.
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    Additionally, there is no evidence that fringe competitors, which 
have higher prices, or new entrants, which are unlikely to materialize, 
could disrupt any coordination between the combined firm and Urresko. 
For these reasons, we have ample basis to conclude that the merger may 
enhance the vulnerability to coordinated effects that already exists in 
the relevant market.\14\
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    \14\ See Merger Guidelines Sec.  7.1 (recognizing that ``the 
risk that a merger will induce adverse coordinated effects may not 
be susceptible to quantification or detailed proof''). The 
Guidelines contemplate that the third factor can be satisfied in 
several ways; as Commissioner Wright himself notes, an acquisition 
of a maverick firm is but ``one illustrative example of the type of 
evidence that would satisfy this third condition.'' Wright Dissent 
at 3.
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    As we noted above, the parties have chosen to address our limited 
competitive concerns in the heavy vehicle tie rods market through a 
proposal to divest TRW's linkage and suspension business in North 
America and Europe. This allows the parties to address our competition 
concerns, as well as those of the European Commission. The EC has 
already

[[Page 27958]]

accepted the proposed settlement and ordered the divestiture of the 
European assets.\15\ Furthermore, there is no evidence that the 
divestiture of TRW's linkage and suspension business would eliminate 
any efficiencies that otherwise might result from the parties' proposed 
combination.
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    \15\ See Press Release, European Commission, Mergers: Commission 
Clears Acquisition of Automotive Components Manufacturer TRW by 
Rival ZF, Subject to Conditions (Mar. 12, 2015), available at http://europa.eu/rapid/press-release_IP-15-4600_en.htm.
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    In sum, because we have reason to believe that customers and 
consumers are likely to suffer a substantial loss of competition as a 
result of the proposed transaction, and there are no demonstrated 
countervailing efficiencies, we believe the public interest is best 
served by accepting the proposed consent order to remedy our 
competitive concerns.

Separate Statement of Commissioner Maureen K. Ohlhausen

ZF Friedrichshafen AG/TRW Automotive Holdings Corp.

    I voted in favor of issuing for public comment the proposed consent 
agreement in this matter. As discussed below, there is sufficient 
evidence to provide me with a reason to believe that, absent a remedy, 
the transaction is likely to violate Section 7 of the Clayton Act. I 
also find that the proposed consent, which is intended to remedy any 
such violation, is in the public interest.
    Based on the evidence presented to me--including the evidence 
discussed in the Analysis to Aid Public Comment and the majority 
statement in this matter--I am satisfied that the ``reason to believe'' 
prong that the Commission must assess in issuing a complaint, including 
in the consent context, is met here. It is important to note that the 
Commission makes the reason to believe determination before a full 
evidentiary and legal record is developed during a trial on the merits, 
which suggests that the standard must necessarily be lower than what 
the Commission or a court should apply for finding ultimate liability. 
Individual Commissioners, of course, have different views on how much 
evidence is necessary to satisfy the reason to believe standard. 
Unfortunately, there does not appear to be a consensus view on what the 
standard requires. I respect Commissioner Wright's view that the 
standard was not met for him in this case. For the reasons identified 
in the majority statement in this matter, I determined that there is a 
credible basis on which to conclude that this merger may enhance the 
vulnerability to coordinated effects that already exists in the 
relevant market at issue.\1\
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    \1\ See 2010 Horizontal Merger Guidelines Sec.  7.1.
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    I further view this consent to be in the public interest. In my 
time as a Commissioner, I have advocated for transparency, 
predictability, and fairness across a variety of settings.\2\ Those 
three critical goals apply equally to the merger context. A practical 
problem in our merger review process arises, however, where 
investigations are cut short by the merging parties, which, for 
business, strategic, or other reasons, offer staff and then ultimately 
the Commission a proposed remedy in lieu of responding to a Second 
Request or other compulsory process. In such cases, the available 
evidence may be sufficient to provide reason to believe the proposed 
transaction would violate Section 7, but a full investigation might (or 
might not) reveal additional evidence sufficient to counterbalance the 
available evidence and support closing the investigation altogether. In 
that situation, the goals of predictability and fairness counsel 
against forcing merging parties (and Commission staff) to incur the 
significant costs associated with a full-phase investigation. Merging 
parties also expend non-trivial amounts of time and money in developing 
and then proposing remedies to FTC staff; those good-faith efforts--
particularly ones that involve coordination of remedies across 
antitrust jurisdictions--should not be discounted. The public interest 
analysis thus should take into account the need for predictability and 
fairness for merging parties in these circumstances.
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    \2\ Those settings have included the use of disgorgement in 
competition cases, the proper scope of our standalone Section 5 
authority, the intersection of intellectual property and antitrust, 
and the treatment of U.S. businesses by foreign antitrust 
jurisdictions. See, e.g., Dissenting Statement of Commissioner 
Maureen K. Ohlhausen, In re Cardinal Health, Inc., FTC File No. 101-
0006 (Apr. 17, 2015), available at https://www.ftc.gov/public-statements/2015/04/dissenting-statement-commissioner-maureen-k-ohlhausen-cardinal-health-inc (dissenting from consent involving 
disgorgement of profits for alleged Section 2 violation); Maureen K. 
Ohlhausen, Section 5 of the FTC Act: Principles of Navigation, 2 J. 
Antitrust Enforcement 1 (2014), available at http://www.ftc.gov/public-statements/2013/10/section-5-ftc-act-principles-navigation-0 
(advocating for additional guidance on the FTC's use of its 
standalone Section 5 authority); Dissenting Statement of 
Commissioner Maureen K. Ohlhausen, In re Motorola Mobility LLC & 
Google, Inc., FTC File No. 121-0120 (Jan. 3, 2013), available at 
https://www.ftc.gov/public-statements/2013/01/statement-commissioner-maureen-ohlhausen-0 (dissenting from consent involving 
standalone Section 5 claim against holder of standard-essential 
patents); Testimony of Commissioner Maureen K. Ohlhausen, ``The 
Foreign Investment Climate in China: U.S. Administration 
Perspectives on the Foreign Investment Climate in China,'' before 
the U.S.-China Economic and Security Review Commission (Jan. 28, 
2015), available at https://www.ftc.gov/public-statements/2015/01/testimony-commissioner-maureen-k-ohlhausen-hearing-foreign-investment (discussing importance of foreign antitrust jurisdictions 
pursuing the goals of predictability, transparency, and fairness).
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Dissenting Statement of Commissioner Joshua D. Wright

In the Matter of ZF Friedrichshafen AG and TRW Automotive Holdings 
Corp.

    The Commission has voted to issue a Complaint and Decision & Order 
against ZF Friedrichshafen AG (``ZF'') to remedy the allegedly 
anticompetitive effects of ZF's proposed acquisition of TRW Automotive 
Holdings Corp. (``TRW''). I respectfully dissent because the evidence 
is insufficient to provide reason to believe ZF's acquisition will 
substantially lessen competition for heavy vehicle tie rods sold in 
North America. In particular, I believe the Commission has not met its 
burden to show that the acquisition will result in an increased 
likelihood of harm from coordinated effects or from unilateral effects. 
As a consequence, the Commission should close the investigation and 
allow the parties to complete the proposed transaction without imposing 
a remedy.
    I write separately today to explain my vote and to discuss the 
quality and quantity of evidence necessary to support a coordinated and 
unilateral effects challenge under the 2010 Horizontal Merger 
Guidelines (``Merger Guidelines'').
    The Complaint alleges the proposed transaction increases the 
likelihood of coordinated effects and unilateral effects in the market 
for heavy vehicle tie rods sold in North America.\1\ After the proposed 
transaction, ZF and TRW would have a combined 41% share. The remaining 
competitor, Urresko, has a 58% share. Fringe suppliers have a 1% share.
---------------------------------------------------------------------------

    \1\ Compl. ] 12, ZF Friedrichshafen AG, FTC File No. 141-0235 
(May 5, 2015).
---------------------------------------------------------------------------

I. Coordinated Effects Are Unlikely in the Relevant Market

    The Complaint implicates an important question with regard to 
coordinated effects: What evidence is necessary to establish reason to 
believe a proposed transaction may substantially lessen competition by 
``enabling or encouraging post-merger coordinated interaction among 
firms in the relevant market that harms customers.'' \2\
---------------------------------------------------------------------------

    \2\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger 
Guidelines Sec.  7 (2010) [hereinafter Merger Guidelines].

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[[Page 27959]]

    The Merger Guidelines offer three conditions that, if satisfied, 
suggest the agency is likely to challenge a merger upon the basis that 
it will result in an increased likelihood of competitive harm from 
coordination. The Merger Guidelines specify that the agencies are 
likely to challenge a merger if: (1) ``the merger would significantly 
increase concentration and lead to a moderately or highly concentrated 
market;'' \3\ (2) the ``market shows signs of vulnerability to 
coordinated conduct;'' \4\ and (3) ``the Agencies have a credible basis 
on which to conclude that the merger may enhance that vulnerability.'' 
\5\
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    \3\ Id. Sec.  7.1.
    \4\ Id.
    \5\ Id.
---------------------------------------------------------------------------

    The second and third conditions are at issue here and worthy of 
further discussion.
    The record evidence is mixed with respect to the second condition, 
whether the market shows signs of vulnerability to coordinated conduct. 
Evidence that the market is generally conducive to coordinated 
interaction includes the fact that heavy vehicle tie rods are fairly 
homogeneous goods and are purchased using relatively short-term 
contracts.
    Also potentially germane to assessing the vulnerability of the 
relevant market to coordinated conduct are previous episodes of 
coordination by the same players in different markets. In 2012, a 
German subsidiary of TRW Automotive, TRW Deutschland Holding GmbH, pled 
guilty to a conspiracy to fix prices of seatbelts, airbags, and 
steering wheels sold to two German automobile customers for vehicles 
manufactured or sold in the United States.\6\ While this prior episode 
does not involve the same relevant product or geographic markets as the 
current matter, it might suggest some vulnerability to coordination.\7\
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    \6\ Plea Agreement ] 4(e)-(f), United States v. TRW Deutschland 
Holding GmbH, No. 2:12-cr-20491-GCS-PJK (E.D. Mich. Sept. 25, 2012).
    \7\ The Merger Guidelines state that ``The Agencies presume that 
market conditions are conducive to coordinated interaction if firms 
representing a substantial share in the relevant market appear to 
have previously engaged in express collusion affecting the relevant 
market,'' but that prior ``express collusion in another geographic 
market will have the same weight if the salient characteristics of 
that other market at the time of the collusion are comparable to 
those in the relevant market,'' and that prior collusion ``in 
another product market may also be given substantial weight if the 
salient characteristics of that other market at the time of the 
collusion are closely comparable to those in the relevant market.'' 
Merger Guidelines, supra note 2, Sec.  7.2. Thus, I am comfortable 
with concluding the prior TRW Deutschland price-fixing case is 
material to our investigation, and that this evidence increases the 
likelihood of coordination, all things equal. However, without a 
more detailed assessment of any logical connection between the 
markets where collusion actually took place and the relevant market 
here, I am hesitant to give this factor alone substantial weight 
given observable differences between the markets. For instance, in 
the markets at issue in that case, the bidding process appeared to 
be more formal with longer commitments. See Information ] 8, United 
States v. TRW Deutschland Holding GmbH, No. 2:12-cr-20491-GCS-PJK 
(E.D. Mich. July 30, 2012).
---------------------------------------------------------------------------

    There are other considerations, however, that indicate the market 
for heavy vehicle tie rods is not particularly vulnerable to 
coordination. First, while the product might be fairly homogeneous, 
there are significant switching costs including the time and cost 
involved with validation testing of the new supplier's tie rods. All 
else equal, significant switching costs make markets less vulnerable to 
coordination because they diminish firms' ability to punish effectively 
deviations from the coordinated price. Second, cost and demand 
fluctuations appear to be relatively frequent and large, which increase 
the information costs needed to detect accurately deviations.\8\ Third, 
Urresko is a relatively recent entrant and has become the largest 
supplier in the market. These types of disruptive market events are 
generally not conducive to successful coordinated interactions. 
Finally, there are a number of large buyers, which can result in 
dramatic market share swings if a supplier loses the majority of a 
buyer's business. While the record evidence with respect to 
vulnerability of the relevant market is certainly mixed at best, it 
would not be unreasonable to find the second prong in the Merger 
Guidelines satisfied.
---------------------------------------------------------------------------

    \8\ For instance, the primary input to produce heavy vehicle tie 
rods is steel. Looking at the producer price index for steel mill 
products, the average annual price change over the past ten years is 
1.6% with a standard deviation of 6.6%. Some of the specific yearly 
changes are substantial, e.g., -8.6%, 7.5%, 9.1%, 12.8%. Producer 
Price Index--Metals and Metal Products, U.S. Bureau of Labor 
Statistics, http://www.bls.gov/regions/mid-atlantic/data/ProducerPriceIndexMetals_US_Table.htm (last visited May 8, 2015).
---------------------------------------------------------------------------

    Ultimately, however, I do not have reason to believe the proposed 
transaction is likely to result in coordinated effects because the 
record evidence does not satisfy the third condition--that is, there is 
no ``credible basis on which to conclude that the merger may enhance'' 
any pre-merger vulnerability to coordination.
    The Merger Guidelines provide the acquisition of a maverick firm as 
one illustrative example of the type of evidence that would satisfy 
this third condition. There is no evidence that either ZF or TRW is a 
maverick firm as contemplated by the Merger Guidelines.
    The sole evidence offered in favor of the proposition that the 
proposed transaction will enhance the market's vulnerability to 
coordination is that the merger will reduce the number of firms in the 
relevant market from three to two. I do not agree that a reduction of 
firms from three to two, without more, is enough to provide ``a 
credible basis to conclude that the merger may enhance that 
vulnerability.'' The observation that a market with N firms will, after 
the merger, have N-1 firms, is simply insufficient without more to 
establish the required credible basis under the Merger Guidelines. This 
is true even when a merger reduces the number of firms from three to 
two. The Commission offers no explanation as to why the Merger 
Guidelines would go through the trouble of requiring a credible basis 
to believe a merger will change the market's competitive dynamics that 
enhances the market's vulnerability to coordinated conduct, in addition 
to an increase in market concentration, in order to substantiate a 
coordinated effects merger challenge if the latter were considered 
sufficient to satisfy both elements.\9\
---------------------------------------------------------------------------

    \9\ The Commission cites Carl Shapiro to support the proposition 
that market concentration is relevant to coordinated effects 
analysis. See Statement of the Federal Trade Commission 2 n.4, ZF 
Friedrichshafen AG, FTC File No. 141-0235 (May 8, 2015) (quoting 
Carl Shapiro, The 2010 Horizontal Merger Guidelines: From Hedgehog 
to Fox in Forty Years, 77 Antitrust L.J. 701, 708 (2010) (``In 
particular, as the revised Guidelines explain, the Agencies place 
considerable weight on HHI measures in cases involving coordinated 
effects.'')). I agree. The 2010 Merger Guidelines establish market 
concentration as one of three conditions that must be satisfied to 
find coordinated effects. What Shapiro does not state, and the 
proposition the Commission does not otherwise substantiate, is that 
evidence of changes in market concentration is sufficient to satisfy 
the third condition along with the first.
---------------------------------------------------------------------------

    As I have stated previously, ``there is no basis in modern 
economics to conclude with any modicum of reliability that increased 
concentration--without more--will increase post-merger incentives to 
coordinate. Thus, the Merger Guidelines require the federal antitrust 
agencies to develop additional evidence that supports the theory of 
coordination and, in particular, an inference that the merger increases 
incentives to coordinate.'' \10\ Janusz Ordover, in a leading treatment 
of the economics of coordinated effects, similarly explains that ``It 
is now well understood that it is not sufficient when gauging the 
likelihood of coordinated effects from a merger to simply observe that 
because the merger reduces the number of firms, it automatically 
lessens the coordination problem facing the firms and enhances

[[Page 27960]]

their incentives to engage in tacit collusion; far from it.'' \11\ The 
required additional evidence needed to satisfy the third condition is 
absent in this case.
---------------------------------------------------------------------------

    \10\ Dissenting Statement of Commissioner Joshua D. Wright 3, 
Fidelity National Financial, Inc., FTC File No. 131-0159 (Dec. 23, 
2013).
    \11\ Janusz A. Ordover, Coordinated Effects, in 2 Issues in 
Competition Law and Policy 1359, 1367 (ABA Section of Antitrust Law 
2008) (``It is quite clear . . . that a reduction in the number of 
firms and concomitant increases in concentration do not necessarily 
make collusion inevitable or even more likely, stable, or 
complete.'').
---------------------------------------------------------------------------

II. Unilateral Effects Are Unlikely in the Relevant Market

    The sole evidence offered in favor of the Commission's allegation 
that the merger will render unilateral price effects likely is that 
some customers have used the competition between ZF and TRW to obtain 
better pricing and some customers have switched between the two 
suppliers.\12\ While this is certainly material to our inquiry, this is 
a thin reed, without more, upon which to base a unilateral price 
effects case. There is no information on price effects. Moreover, there 
is no substantial evidence on the record with respect to the role the 
market leader, Urresko, plays in disciplining prices. The fact that 
Urresko is a recent entrant and has become the market leader in a 
relatively short period of time also renders dubious the proposition 
that barriers to entry in the relevant market are adequate to sustain a 
post-merger price increase. Additionally, even with sufficient 
barriers, Urresko's rapid growth undermines significantly any 
unilateral effects argument and suggests a post-merger price increase 
from a merged ZF-TRW would be fragile and potentially unsuccessful. The 
Merger Guidelines contemplate the possibility of intense competition in 
markets with small numbers of firms, observing that ``Even a highly 
concentrated market can be very competitive if market shares fluctuate 
substantially over short periods of time in response to changes in 
competitive offerings.'' \13\
---------------------------------------------------------------------------

    \12\ See Analysis of Agreement Containing Consent Order to Aid 
Public Comment 2, ZF Friedrichshafen AG, FTC File No. 141-0235 (May 
5, 2015).
    \13\ Merger Guidelines Sec.  5.3, supra note 2.
---------------------------------------------------------------------------

    Moreover, unilateral effects in a homogeneous goods market 
principally involve reductions in output.\14\ In order to be 
profitable, the reduction in output must not be met by a sufficient 
supply response by rivals. Thus, absent meaningful capacity 
constraints, unilateral effects are less likely in homogeneous goods 
markets. I have seen no evidence that Urresko is capacity constrained.
---------------------------------------------------------------------------

    \14\ See id. Sec.  6.3.
---------------------------------------------------------------------------

III. Conclusion

    The Commission insists that a different ``lens'' should be used to 
evaluate evidence in markets where the number of firms is reduced by 
merger to three or two.\15\ The Commission cites in support of its 
structural theory and presumption three academic articles written by 
economists.\16\ Only two offer economic evidence and the proffered 
substantiation fails to support the claim. The first is an important 
early entrant into the static entry literature examining the 
relationship between market size and the number of entrants in a 
market, focusing upon isolated rural markets.\17\ It strains credulity 
to argue that Bresnahan and Reiss's important analysis of the impact of 
entry in markets involving doctors, dentists, druggists, plumbers, and 
tire dealers in local and isolated areas, where they find the 
competitive benefits of a second competitor are especially important, 
apply with generality sufficient to support a widely applicable 
presumption of harm based upon the number of firms. Indeed, the authors 
warn against precisely this interpretation of their work.\18\
---------------------------------------------------------------------------

    \15\ See Statement of the Federal Trade Commission, supra note 
9, at 2.
    \16\ Id. at 2 n.5.
    \17\ Timothy F. Bresnahan & Peter C. Reiss, Entry and 
Competition in Concentrated Markets, 99 J. Pol. Econ. 977 (1991). 
While Bresnahan and Reiss is an important early contribution to the 
static entry literature, it cannot possibly bear the burden the 
Commission wishes to place upon it. Abstracting from the 
complexities of market definition was necessary for the researchers 
to isolate entry decisions. This is possible when studying the 
effects of entry by a second dentist in a town with a population of 
less than 1,000, but not in most real-world antitrust applications. 
The authors of the study make this point themselves, noting that 
``whether this pattern appears in other industries remains an open 
question.'' Id. at 1007.
    \18\ In earlier research using similar empirical techniques and 
data--namely, small rural markets--Bresnahan and Reiss plainly 
reject the notion that the findings should inform views of market 
structure and competition generally: ``We do not believe that these 
markets `stand in' for highly concentrated industries in the sectors 
of the economy where competition is national or global.'' Timothy F. 
Bresnahan & Peter C. Reiss, Do Entry Conditions Vary Across Markets, 
3 Brookings Papers Econ. Activity 833, 868 (1987).
---------------------------------------------------------------------------

    The second is a laboratory experiment and does not involve the 
behavior of actual firms and certainly cannot provide sufficient 
economic evidence to support a presumption that four-to-three and 
three-to-two mergers in real-world markets will result in 
anticompetitive coordination.\19\ Once again, the authors warn against 
such an interpretation.\20\
---------------------------------------------------------------------------

    \19\ Steffen Huck et al., Two Are Few and Four Are Many: Number 
Effects from Experimental Oligopolies, 53 J. Econ. Behavior & Org. 
435 (2004).
    \20\ Id. at 436 (``The number of firms is not the only factor 
affecting competition in experimental markets. This implies that 
there exists no unique number of firms that determines a definite 
borderline between non-cooperative and collusive markets 
irrespective of all institutional and structural details of the 
experimental markets.'').
---------------------------------------------------------------------------

    Finally, the Commission cites a draft article, authored by Steve 
Salop, in support of its view that economic evidence supports a 
presumption that four-to-three and three-to-two mergers are 
competitively suspect.\21\ The article does not purport to study or 
provide new economic evidence on the relationship between market 
structure and competition. Thus, it cannot support the Commission's 
proposition.\22\ In sum, there is simply no empirical economic evidence 
sufficient to warrant a presumption that anticompetitive coordination 
is likely to result from four-to-three or three-to-two mergers.
---------------------------------------------------------------------------

    \21\ Steven C. Salop, The Evolution and Vitality of Merger 
Presumptions: A Decision-Theoretic Approach (Georgetown Law Faculty 
Publications and Other Works, Working Paper No. 1304, 2014), 
available at http://scholarship.law.georgetown.edu/facpub/1304/.
    \22\ Nevertheless, to the extent Salop argues in favor of legal 
presumptions in merger analysis, he clarifies that they ``obviously 
should be based on valid economic analysis, that is, proper economic 
presumptions,'' which should be updated ``based on new or additional 
economic factors besides market shares and concentration.'' Id. at 
37, 48. I agree. Additionally, Salop explains that ``[c]ontemporary 
economic learning suggests that concentration be considered when 
undertaking competitive effects analysis--in conjunction with other 
factors suggested by the competitive effects theory--but not treated 
as the sole determinant of post-merger pricing.'' Id. at 13-14. 
Notably, Salop does not endorse a distinction between four-to-three 
mergers or three-to-two mergers and mergers in less concentrated 
markets that justifies a presumption that the former are 
anticompetitive; rather, he merely observes that empirical evidence 
and economic theory do not warrant ``ignoring market shares and 
concentration in merger analysis.'' Id. at 12 (emphasis in 
original).
---------------------------------------------------------------------------

    It is important to note that the Commission and I have no 
disagreement over the proposition that the number of competitors within 
a market is a relevant fact to assess the likely competitive effects of 
a transaction. The relevant question is not whether the number of firms 
matters but how much it matters--and in particular, whether a movement 
to three or two firms warrants a generally applicable presumption that 
a transaction is more likely than not to harm competition. I do not 
believe it does. The Commission disagrees.
    The Merger Guidelines make clear that the purpose of market 
concentration and market shares associated thresholds ``is not to 
provide a rigid screen to separate competitive benign mergers from 
anticompetitive ones, although high levels of concentration do raise 
concerns.'' \23\

[[Page 27961]]

Rather concentration is but one aspect of the inquiry aimed at better 
understanding post-merger incentives to compete. The predictive power 
of market share and market concentration data is informed by economic 
theory and available empirical evidence. There is no empirical evidence 
sufficient to establish a generally applicable presumption that mergers 
that reduce the number of firms to three or two are likely to harm 
competition.\24\ Further, the Commission's reliance upon such shorthand 
structural presumptions untethered from empirical evidence subsidize a 
shift away from the more rigorous and reliable economic tools embraced 
by the Merger Guidelines in favor of convenient but obsolete and less 
reliable economic analysis.
---------------------------------------------------------------------------

    \23\ Merger Guidelines, supra note 2, Sec.  5.3.
    \24\ See Statement of Commissioner Joshua D. Wright 3-5, Holcim 
Ltd., FTC File No. 141-0129 (May 8, 2015).
---------------------------------------------------------------------------

    This is not to say that evidence of changes in market structure 
cannot ever warrant such a presumption. It does when the evidence 
warrants as much. The Commission has in certain contexts found reason 
to believe competition would be substantially lessened based simply 
upon a reduction of firms in the relevant market. See Actavis plc-
Forest Laboratories \25\ and also Akorn-Hi-Tech Pharmacal,\26\ which 
both involve generic pharmaceutical markets. The Commission was able to 
draw conclusions about the relationship between price and the number of 
firms in generic pharmaceutical markets because substantial research 
has been done to establish that such a relationship exists.\27\ Indeed, 
the cases in the pharmaceutical industry are the exceptions that prove 
the rule that the Commission needs to do more than count the number of 
firms in a market to have reason to believe a substantial lessening of 
competition is likely. No such research has been done in this market. 
Accordingly, unlike in generic pharmaceutical markets, we have no 
evidence to conclude that a simple reduction in the number of firms in 
this market is likely to lead to higher prices and lower output. Simply 
assuming such a relationship exists in this market without any evidence 
to suggest that it does harkens back to the bad old days of the first 
half of the 20th century, when the structure-conduct-performance 
paradigm was in vogue.
---------------------------------------------------------------------------

    \25\ Analysis of Agreement Containing Consent Orders to Aid 
Public Comment 2, Actavis plc, FTC File No. 141-0098 (June 30, 2014) 
(``In generic pharmaceutical product markets, price generally 
decreases as the number of generic competitors increases. 
Accordingly, the reduction in the number of suppliers within each 
relevant market would likely have a direct and substantial 
anticompetitive effect on pricing.'').
    \26\ Analysis of Agreement Containing Consent Orders to Aid 
Public Comment 3, Akorn Enterprises, Inc., FTC File No. 131-0221 
(Apr. 14, 2014) (``In generic pharmaceuticals markets, price is 
heavily influenced by the number of participants with sufficient 
supply.'').
    \27\ See David Reiffen & Michael R. Ward, Generic Drug Industry 
Dynamics, 87 Rev. Econ. & Stat. 37 (2005). As an aside, given that 
we are now ten years removed from the publication of this important 
study and over twenty years removed from the sample period, it might 
be worth revisiting this question with fresher data if the 
Commission intends to continue relying upon inferences of 
competitive harm from market structure in the generic pharmaceutical 
market.
---------------------------------------------------------------------------

    To summarize, there are three-to-two mergers that give rise to 
unilateral effects, and three-to-two mergers that give rise to 
coordinated effects. It is our burden to show that this three-to-two 
merger is likely anticompetitive. The Commission must find sufficient 
evidence to support an inference of likely economic harm to consumers. 
The heavy degree of reliance upon a structural presumption in this case 
is not sufficient to do so.
    Finally, the Commission and Commissioner Ohlhausen each claim that 
the quantity, and presumably the quality, of the evidence is not the 
same for investigations truncated by remedy proposals compared to cases 
where a full phase investigation is completed or compared to a 
completed trial, respectively.\28\ While this observation is an 
accurate description of the pragmatic reality of conducting law 
enforcement investigations, I do not agree with the implication that 
the quantum and quality of evidence needed to satisfy the ``reason to 
believe'' standard should turn on whether and when a remedy proposal is 
offered during an investigation. The idea is that we should ``take into 
account the need for predictability and fairness for merging parties in 
these circumstances'' \29\ and considerations whether it is 
``appropriate to subject the parties to the added expense and delay of 
a full phase investigation.'' \30\ I fully support the agency 
identifying opportunities to lower the administrative costs of 
antitrust investigations and believe there to be ample opportunity to 
do so. But attempts to operate a more efficient law enforcement system 
must satisfy the constraint, required by law, that there is reason to 
believe a transaction violates Section 7 of the Clayton Act. That 
standard sets a relatively low bar for the minimum level of evidence 
required to substantiate a merger challenge. I reject the view that it 
should be a standard that should be relaxed because the merging parties 
offer a remedy.\31\ The Commission is primarily a law enforcement 
agency, albeit one that largely conducts it business by entering into 
consents with merging parties. Making the consent process more 
efficient and predictable is a laudable goal; but we must not allow 
pursuit of a more efficient consent process to distort our evaluation 
of the substantive merits. To do so, as in my view we have here, risks 
in the long run reducing the institutional capital of the agency in 
magnitudes far greater than any potential cost savings from truncating 
an investigation.
---------------------------------------------------------------------------

    \28\ See Statement of the Federal Trade Commission, supra note 
9, at 3 n.7; see also Separate Statement of Commissioner Maureen K. 
Ohlhausen 1, ZF Friedrichshafen AG, FTC File No. 141-0235 (May 8, 
2015).
    \29\ Separate Statement of Commissioner Maureen K. Ohlhausen, 
supra note 28, at 2.
    \30\ Statement of the Federal Trade Commission, supra note 9, at 
3 n.7.
    \31\ That said, as I stated in Holcim Ltd., I am not suggesting 
the ``reason to believe'' standard ``requires access to every piece 
of relevant information and a full and complete economic analysis of 
a proposed transaction, regardless of whether the parties wish to 
propose divestitures before complying with a Second Request.'' See 
Statement of Commissioner Joshua D. Wright, supra note 24, at 11.
---------------------------------------------------------------------------

    For these reasons, I cannot join my colleagues in supporting the 
consent order because I do not have reason to believe the transaction 
violates Section 7 of the Clayton Act nor that a consent ordering 
divestiture is in the public interest.

[FR Doc. 2015-11721 Filed 5-14-15; 8:45 am]
 BILLING CODE 6750-01-P