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Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition

  • Farrell Joseph

    ()

    (University of California, Berkeley)

  • Shapiro Carl

    ()

    (University of California, Berkeley)

We describe a simple initial indicator of whether a proposed merger between rivals in a differentiated product industry is likely to raise prices through unilateral effects. Our diagnostic calibrates upward pricing pressure (UPP) resulting from the merger, based on the price/cost margins of the merging firms' products and the extent of direct substitution between them. As a screen for likely unilateral effects, this approach is practical, more transparent, and better grounded in economics than are concentration-based methods.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 10 (2010)
Issue (Month): 1 (March)
Pages: 1-41

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Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:9
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  1. Froeb, Luke & Tschantz, Steven & Werden, Gregory J., 2005. "Pass-through rates and the price effects of mergers," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 703-715, December.
  2. Goppelsroeder, M. & Schinkel, M.P. & Tuinstra, J., 2006. "Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index," CeNDEF Working Papers 06-09, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  3. Volker Nocke & Michael D. Whinston, 2008. "Dynamic Merger Review," NBER Working Papers 14526, National Bureau of Economic Research, Inc.
  4. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
  5. 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.
  6. Federico Echenique, 2000. "Comparative Statics by Adaptive Dynamics and The Correspondence Principle," Econometric Society World Congress 2000 Contributed Papers 1906, Econometric Society.
  7. Oliver Budzinski & Isabel Ruhmer, 2009. "Merger Simulation in Competition Policy: A Survey," Working Papers 82/09, University of Southern Denmark, Department of Environmental and Business Economics.
  8. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  9. Werden, G.J., 1992. "The History of Antitrust Market Delineation," Papers 92-8, U.S. Department of Justice - Antitrust Division.
  10. Dennis W. Carlton, 2007. "The Need to Measure the Effect of Merger Policy and How to Do It," EAG Discussions Papers 200715, Department of Justice, Antitrust Division.
  11. Aaron S. Edlin & Joseph Farrell, 2004. "The American Airlines Case: A Chance to Clarify Predation Policy," Law and Economics 0401003, EconWPA.
  12. Bergstrom, Theodore C. & Varian, Hal R., 1985. "Two remarks on Cournot equilibria," Economics Letters, Elsevier, vol. 19(1), pages 5-8.
  13. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  14. 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.
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