Reference no: EM133531799

In 1961, Ford Motor Company acquired Autolite, a manufacturer of spark plugs, in order to enter the profitable aftermarket for spark plugs sold as replacement parts. Ford and the other major automobile manufacturers had previously purchased original equipment spark plugs (those installed in new cars when they leave the factory) from independent producers such as Autolite and Champion, either at or below the producer's cost. The independents were willing to sell original equipment plugs so cheaply because aftermarket mechanics often replace original equipment plugs with the same brand of spark plug. GM had already moved into the spark plug market by developing its own division. Ford decided to do so by means of a vertical merger under which it acquired Autolite. Prior to the Autolite acquisition, Ford bought 10 percent of the total spark plug output. The merger left Champion as the only major independent spark plug producer. Champion's market share thereafter declined because Chrysler was the only major original equipment spark plug purchaser remaining in the market. The government filed a divestiture suit against Ford, arguing that Ford's acquisition of Autolite violated § 7 of the Clayton Act. Should Ford have been ordered to divest itself of Autolite?

Horizontal, vertical and conglomerate mergers can all have anti-competitive effects in the relevant market impacted by the merger, although the effects vary depending on the nature of the merger. Identify the type of merger that is taking place, the various anticompetitive effects of such a merger, and how the court will determine if the merger violates section 7 of the Clayton act.