The Department of Justice and Federal Trade Commission Antitrust Guidelines for Collaborations Among Competitors,1 issued in 2000, are meant to provide an analytical framework to assess the competitive effects of nonmerger collaborative agreements such as joint ventures and strategic alliances. To encourage procompetitive agreements, the Collaboration Guidelines include a “safety zone” for collaborations that involve participants with less than 20 percent market share in the relevant market.2
For collaborations that exceed the 20 percent safety zone, the agencies undertake a fact-intensive rule-of-reason analysis into the competitive harms and benefits of the collaboration. This inquiry focuses on various factors, including market concentration, the nature of the industry, exclusivity restraints, barriers to entry, and the extent of information exchange among competitors. The agencies then weigh anticompetitive concerns against procompetitive benefits to determine whether the collaboration should be permitted.
Market share estimates provide a useful starting point under the Collaboration Guidelines for analyzing a competitor collaboration, but this data often is (and should be) overshadowed by other facts and circumstances particular to the structure and operation of the collaboration under review. This analytical approach draws on agency reviews of competitor collaborations that predate the Collaboration Guidelines, and no material changes in this approach are warranted now.
Basic Analytical Approach and Safety Zone
In evaluating competitor collaborations that are facially legitimate, the agencies first examine market share to determine “the likelihood that the relevant agreement will create or increase market power or facilitate its exercise.” As market share increases, so too does the probability that a collaboration will yield anti-competitive effects. Nonetheless, the Collaboration Guidelines make clear that, “absent extraordinary circumstances, the Agencies do not challenge a competitor collaboration when the market shares of the collaboration and its participants collectively account for no more than twenty percent of each relevant market in which competition may be affected.”3
Consistent with these Guidelines, the agencies have generally declined to challenge proposed joint ventures that fall below the 20 percent threshold. For example, in 2001, the Department of Justice declined to challenge a proposed joint venture between Delta Airlines Inc. and Société Air France for the joint marketing of international air cargo shipment services from the United States. The combined market share of the two airlines was just 12 percent.4 More recently, the Department of Justice declined to challenge a proposed joint venture between multiple regional freight transportation companies which sought to create a unified network to jointly coordinate operations, prices, sales, and marketing. 5 The combined market share of the joint network and its members was less than 20 percent in both national and regional markets.6
To be sure, the 20 percent safety zone does not apply to cooperative agreements “that are per se illegal, or that would be challenged without a detailed market analysis, or to competitor collaborations to which a merger analysis is applied.”7
Outside the Safety Zone
For collaborations where participating competitors’ combined market shares exceed the 20 percent safety zone, the participant’s market shares are a starting point, but not an end point, for evaluating the competitive effects of the arrangement.8 Even at the initial stages, the agencies also consider overall concentration in relevant markets, taking into account the number and market shares of rivals that are not participants in the collaboration.
Beyond this, the agencies’ inquiry becomes more fact-intensive and less formulaic, focusing on factors particular to the collaboration and markets in question. Among other facts, the agencies will consider the nature of the collaboration (i.e., fully or partially integrated), the type of industry involved, whether the collaboration involves information exchanges or limits on independent decision-making, the exclusivity of the collaboration, and whether barriers exist to entering markets in which the collaboration and its participants operate. If this analysis suggests that the collaboration would result in anticompetitive effects, the agencies weigh those effects against any procompetitive benefits, such as quality improvements or price reductions. If the collaboration appears reasonably likely to produce net procompetitive benefits, the agencies will generally approve the collaboration, so long as restraints that are part of the arrangement are reasonably necessary to achieve its procompetitive goals.
Shortly after issuing the Collaboration Guidelines, the DOJ permitted a proposed collaboration between two manufacturers of medical endoscopy equipment which sought to jointly market and sell each other’s products.9Although the manufacturers acknowledged that their combined market shares for certain products eclipsed the Collaboration Guidelines’ 20 percent safety zone, the DOJ determined that the collaboration was permissible because the combined shares were not “significantly above” the 20 percent threshold and because the collaboration would generate procompetitive efficiencies by “provid[ing] customers with more choices, greater convenience and better service with little likelihood of raising prices above competitive levels.”10
This basic analytical framework, as set forth under the Guidelines, tracks with agency reviews that predate the Collaboration Guidelines, where the agencies often declined to challenge collaborations that fell outside the 20 percent safety zone but pose minimal anticompetitive concerns or appeared reasonably likely to yield countervailing procompetitive benefits.11
For example, in one of several health care-related joint ventures approved by the agencies in the 1980s and 1990s, the DOJ allowed radiologists in the Chicago area to form a joint venture to collectively negotiate contracts with third-party payers, even though the network had a market share of 25 percent based on the number of participating radiologists.12 The DOJ explained that “market share is only a proxy for market power” and “[t]he real issue is whether [the joint venture] will have sufficient power to effectuate a non-transitory price increase.” In approving the joint venture (and finding that it would not exercise such power), the DOJ cited the presence of other competing radiology networks, the lack of barriers to entry in the industry, and the ability of physicians to refer patients to other providers.13 The DOJ also cited the radiologist network’s procompetitive justifications— namely, that its screening procedures would improve the quality of radiology services in the area. It is likely that the DOJ would have reached the same conclusions under the Collaboration Guidelines.
In another competitor collaboration permitted before the Collaboration Guidelines were issued, the FTC approved an agreement between General Motors and Toyota to jointly design and manufacture subcompact automobiles in the United States.14 At the time, General Motors alone had a 44 percent market share in the U.S. automobile market, and the two companies had a combined 30 percent share in the more specific subcompact automobile market.15 Although the FTC initially sought to block the joint venture, it later reached a consent agreement that approved the joint venture but restricted certain information exchanges between the two companies.16 The FTC noted the anticompetitive risks of the collaboration but determined that those risks were outweighed by the joint venture’s procompetitive benefits, which would increase the number of small cars in the United States, thus decreasing costs and increasing competition.17
In contrast, the FTC has successfully challenged joint ventures— even those with lower market shares—that involved concentrated markets with high barriers to entry. In the 1980s, the FTC successfully blocked a proposed joint venture between two record companies when there were only four major competitors in the industry and no likelihood of new entrants.18 The combined market share of the joint venture would have been just 26 percent.19
The FTC also successfully enjoined a proposed joint venture between two manufacturers of outboard boat motors when the terms of the joint venture would have precluded one of the members from entering (and thus diversifying) the concentrated U.S. market.20 The combined market share of that joint venture would have been just 24–26 percent.21 Not surprisingly, the agencies typically take enforcement action against joint ventures whose combined market shares approach 100 percent.22
While the Collaboration Guideline’s 20 percent threshold provides a useful springboard for analyzing competitor collaborations, it is by no means the only factor the agencies consider when contemplating enforcement action. Rather, for collaborations that exceed the 20 percent threshold, the agencies apply a flexible approach that measures the collaboration’s anticompetitive effects and then balances them against procompetitive benefits.
This basic analytical framework is largely consistent with how the agencies evaluated proposed competitor collaborations before the Collaboration Guidelines were issued. The facts and details of the particular collaboration and the markets in which it operates will (and should) continue to drive the agencies’ analysis.
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