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Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index

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Author Info

  • Goppelsroeder, M.

    (Graduate Institute of International Studies, Geneva)

  • Schinkel, M.P.

    ()
    (Universiteit van Amsterdam)

  • Tuinstra, J.

    (Universiteit van Amsterdam)

Abstract

In both US and EU merger control, merger-specific efficiencies are recognized as a possible defense for horizontal mergers that raise competition concerns. We introduce the Werden-Froeb-index (WFI) to assist in evaluating these efficiencies. The index measures the average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the merger is consummated. It has low information requirements and can deal with any number of firms in price- or quantity-competition merging fully or partially, and a large class of demand and cost functions. We show how the WFI complements Phase I merger inquiries as a screening mechanism.

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 06-09.

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Date of creation: 2006
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Handle: RePEc:ams:ndfwpp:06-09

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Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
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Web page: http://www.fee.uva.nl/cendef/
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  1. Reynolds, Robert J. & Snapp, Bruce R., 1986. "The competitive effects of partial equity interests and joint ventures," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 4(2), pages 141-153, June.
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  3. Lars-Hendrik Röller & Johan Stennek & Frank Verboven, 2000. "Efficiency Gains from Mergers," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 00-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt96z174x1, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  6. Heidhues, Paul & Lagerlöf, Johan N.M., 2003. "On the Desirability of an Efficiency Defense in Merger Control," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3841, C.E.P.R. Discussion Papers.
  7. Epstein, Roy J. & Rubinfeld, Daniel L., 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt9jt389nb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  10. Fabrizi, Simona & Lippert, Steffen, 2005. "How much efficiency gains and price reductions for an efficiency defense? 'Quanto Basta'," DFAEII Working Papers 2004-04, University of the Basque Country - Department of Foundations of Economic Analysis II.
  11. Epstein, Roy J. & Rubinfeld, Daniel, 2012. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt2k9116ph, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  12. White, Lawrence J, 1987. "Antitrust and Merger Policy: A Review and Critique," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 1(2), pages 13-22, Fall.
  13. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 219-27, March.
  14. Rubinfeld, Daniel L. & Epstein, Roy J., 2001. "Merger Simulation: A Simplified Approach with New Applications," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt2sq9s8c8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  15. Epstein, Roy J. & Rubinfeld, Daniel, 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt1c65s24r, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  19. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 1(2), pages 23-40, Fall.
  20. Froeb, Luke M. & Werden, Gregory J., 1998. "A robust test for consumer welfare enhancing mergers among sellers of a homogeneous product," Economics Letters, Elsevier, Elsevier, vol. 58(3), pages 367-369, March.
  21. Werden, G.J. & G.J. & Froeb, L.M., 1995. "Simulation as an Alternative to Structural Merger Policy in Differentiated Products Industries," Papers, U.S. Department of Justice - Antitrust Division 95-02, U.S. Department of Justice - Antitrust Division.
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Cited by:
  1. Shapiro, Carl & Farrell, Joseph, 2008. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt35c5f846, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Bos Jaap W.B. & Ling Chan Yee & Kolari James W & Yuan Jiang, 2010. "Competition and Critical Mass," Research Memorandum 063, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Emilie Dargaud, 2013. "Horizontal mergers, efficiency gains and remedies," European Journal of Law and Economics, Springer, Springer, vol. 36(2), pages 349-372, October.

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