This report addresses the appropriate antitrust standards for vertical mergers. It first provides an overview, and then analyzes a specific application to the Federal Trade Commission’s (FTC) current challenge of Illumina-GRAIL’s recently consummated merger, one of the few such mergers actually litigated in decades. We draw on our broad experience at the FTC and with antitrust enforcement in health care—both in and out of government—as well as our extensive scholarly work on the law and economics of antitrust and competition law.

Part I discusses the economic and legal principles underlying sensible vertical merger enforcement that the FTC should apply. Economic analysis is essential to evaluate potential exclusion to protect competition, not merely competitors. Yet, economic theory alone cannot establish sound antitrust rules for vertical mergers.

Part II applies these core economic and legal arguments to evaluate the merits of the FTC’s current challenge to the Illumina-GRAIL merger. At bottom, the FTC’s complaint fails to support its theory of standalone harm to potential competition through foreclosure. Not only is the structural evidence upon which it relies largely irrelevant to this innovation market case, but also the most probative evidence of purpose, power, and effect uniformly appears to favor Illumina.

Disclaimer: I was retained by the CEI to provide independent consultant services in connection with the appropriate standards for analysis of vertical mergers.