Throughout the last half-century, the stance on vertical mergers, in which a company integrates with a business in its supply chain, has predominantly centered on a Chicago School orthodoxy perception. Typically, such mergers were seen as intrinsically pro-competitive and seldom prompted concerns related to competition. This ideology of vertical integration is increasingly confronted, particularly by antitrust authorities in the US and the UK.
Scholars from the University of Chicago have profoundly influenced antitrust policy since the 1970s. They advocated less stringent regulations and argued that mergers and acquisitions, including vertical integrations, lead to economies of scale and efficiency gains that ultimately benefit consumers. The belief was that competition would be enhanced, not stifled, in most cases.
However, the winds of change are blowing. The inherent faith in the pro-competitive benefits of vertical mergers is wavering. There are mounting concerns that these mergers can skew competition by making it harder for competitors of the integrated firm to access vital supplies, services, and distribution channels. This shift is reflected in the growing activism of antitrust authorities both in the US and the UK.
In recent times, these authorities have begun to adopt a firmer approach, scrutinizing and challenging vertical mergers that they believe may hinder competition. Particularly, regulators seem to be more geared to explore claims of foreclosure, where a merger makes it more difficult for rivals to compete by restricting their access to key business components like supplies or channels of distribution.
As such, it is increasingly clear that vertical mergers are no longer receiving carte blanche approval and that an era of more stringent regulation may be approaching. Legal professionals working in both businesses contemplating such mergers and law firms advising on them, should take due notice of this increasingly scrutinized scrutiny. Both corporate and legal decision-makers will need to consider this shifting landscape when planning future mergers and acquisitions.
For more in-depth information, you can read about this shift in antitrust authorities’ stance toward vertical integrations at JD Supra.