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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)

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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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Publisher 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
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  1. Lars-Hendrik Röller & Johan Stennek & Frank Verboven, 2000. "Efficiency Gains from Mergers," CIG Working Papers FS IV 00-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
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  2. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 23-40, Fall. [Downloadable!] (restricted)
  3. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 205-29, October.
  4. Roy Epstein & Daniel Rubinfeld, 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series 1002, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
  5. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March. [Downloadable!] (restricted)
  6. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March. [Downloadable!] (restricted)
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  7. Joseph Farrell & Carl Shapiro, 2001. "Scale Economies and Synergies in Horizontal Merger Analysis," Industrial Organization 0012002, EconWPA, revised 05 Jan 2001. [Downloadable!]
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  8. Bruce R. Lyons, 2004. "Reform of European Merger Policy," Review of International Economics, Blackwell Publishing, vol. 12(2), pages 246-261, 05. [Downloadable!] (restricted)
  9. Werden, G.J., 1996. "A Robust Test for Consumer Welfare Enhancing Mergers Among Sellers of Differentiated Products," Papers 96-01, U.S. Department of Justice - Antitrust Division.
  10. Lagerlof, Johan N.M. & Heidhues, Paul, 2005. "On the desirability of an efficiency defense in merger control," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 803-827, December. [Downloadable!] (restricted)
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  11. Daniel Rubinfeld & Roy Epstein, 2001. "Merger Simulation: A Simplified Approach with New Applications," Competition Policy Center, Working Paper Series CPC01-026, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  12. Reynolds, Robert J. & Snapp, Bruce R., 1986. "The competitive effects of partial equity interests and joint ventures," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 141-153, June. [Downloadable!] (restricted)
  13. Dansby, Robert E & Willig, Robert D, 1979. "Industry Performance Gradient Indexes," American Economic Review, American Economic Association, vol. 69(3), pages 249-60, June. [Downloadable!] (restricted)
  14. Froeb, L.M. & Werden, G.J., 1997. "A Robust test for Consumer Welfare Enhancing Mergers Among Sellers of a Homogeneous Product," Papers 97-1, U.S. Department of Justice - Antitrust Division.
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  15. White, Lawrence J, 1987. "Antitrust and Merger Policy: A Review and Critique," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 13-22, Fall. [Downloadable!] (restricted)
  16. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  17. Werden, G.J. & G.J. & Froeb, L.M., 1995. "Simulation as an Alternative to Structural Merger Policy in Differentiated Products Industries," Papers 95-02, U.S. Department of Justice - Antitrust Division.
  18. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence From Radio Broadcasting," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1009-1025, August. [Downloadable!] (restricted)
  19. Reitman, David, 1994. "Partial Ownership Arrangements and the Potential for Collusion," Journal of Industrial Economics, Blackwell Publishing, vol. 42(3), pages 313-22, September. [Downloadable!] (restricted)
  20. Werden, Gregory J, 1996. "A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products," Journal of Industrial Economics, Blackwell Publishing, vol. 44(4), pages 409-13, December. [Downloadable!] (restricted)
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