[nnvvhh]

Take note that the FTC has not actually done anything, they have only initiated a lawsuit. A court may disagree with the FTC's assessment and permit the merger. The government loses antitrust suits. But antitrust suits are long and expensive, so a challenge like this may cause Nvidia and Arm to back off.

Your intuition is right in that vertical mergers are viewed less suspiciously than mergers between competitors. But courts still assess the impact to competition in vertical mergers. As you did, assume the worst case: if Arm is really crucial to Nvidia's competitors, and the merged firm keeps Arm's designs to themselves, competition in chip-supply is harmed. Yes, Nvidia was savvy etc. and is just doing what another actor could do, but compare this method of Nvidia beating their competitors versus the "ideal" way where Nvidia makes a better product, does it cheaper, and is generally more efficient. That's what antitrust law wants. It wants the merits of the product and the org to decide the winner in a market, not things like buying Arm and keeping them to yourself.