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

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Author Info

  • Marie Goppelsroeder

    ()
    (Graduate Institute of International Studies, Geneva, Switzerland)

  • Maarten Pieter Schinkel

    ()
    (Faculty of Economics and Business, Universiteit van Amsterdam)

  • Jan Tuinstra

    ()
    (Faculty of Economics and Business, Universiteit van Amsterdam)

Abstract

This paper introduces the Werden-Froeb Index (WFI) to assist in evaluating merger-specific efficiencies in horizontal mergers. The index measures the weighted average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the (full or partial) merger is consummated. The WFI is well defined, objective and robust, and it has relatively low information requirements. We propose to use the index as a natural complement to concentration measures such as the Hirschmann-Herfindahl Index in the assessment of horizontal mergers. This discussion paper has resulted in a publication in The Journal of Industrial Economics , 56(4), 778-808.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-074/1.

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Date of creation: 25 Aug 2006
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Handle: RePEc:dgr:uvatin:20060074

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Web page: http://www.tinbergen.nl

Related research

Keywords: Merger control; efficiency defense; index; HHI;

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References

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  1. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  2. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Department of Economics, Working Paper Series qt96z174x1, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Roy J. Epstein & Daniel L. Rubinfeld, 2002. "Merger Simulation: A Simplified Approach with New Applications," Industrial Organization 0201002, EconWPA.
  4. 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.
  5. Bruce R. Lyons, 2004. "Reform of European Merger Policy," Review of International Economics, Wiley Blackwell, vol. 12(2), pages 246-261, 05.
  6. Dansby, Robert E & Willig, Robert D, 1979. "Industry Performance Gradient Indexes," American Economic Review, American Economic Association, vol. 69(3), pages 249-60, June.
  7. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 23-40, Fall.
  8. Johan N. M. Lagerlöf & Paul Heidhues, 2004. "On the Desirability of an Efficiency Defense in Merger Control," Royal Holloway, University of London: Discussion Papers in Economics 04/24, Department of Economics, Royal Holloway University of London, revised Oct 2004.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series 543, Research Institute of Industrial Economics.
  14. 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.
  15. Epstein, Roy J. & Rubinfeld, Daniel, 2012. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt2k9116ph, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  16. 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.
  17. Fisher,Franklin M. & Shell,Karl, 1998. "Economic Analysis of Production Price Indexes," Cambridge Books, Cambridge University Press, number 9780521556231, October.
  18. Reitman, David, 1994. "Partial Ownership Arrangements and the Potential for Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 313-22, September.
  19. 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.
  20. Rubinfeld, Daniel L. & Epstein, Roy J., 2001. "Merger Simulation: A Simplified Approach with New Applications," Competition Policy Center, Working Paper Series qt2sq9s8c8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  21. Epstein, Roy J. & Rubinfeld, Daniel L., 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt9jt389nb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  22. 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.
  23. Epstein, Roy J. & Rubinfeld, Daniel, 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt1c65s24r, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  24. Werden, Gregory J, 1996. "A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 409-13, December.
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Cited by:
  1. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
  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, vol. 36(2), pages 349-372, October.

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