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

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Listed author(s):
  • Farrell Joseph

    ()

    (University of California, Berkeley)

  • Shapiro Carl

    ()

    (University of California, Berkeley)

Abstract

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. Federico Echenique, 2002. "Comparative Statics by Adaptive Dynamics and the Correspondence Principle," Econometrica, Econometric Society, vol. 70(2), pages 833-844, March.
  2. Matthew Weinberg, 2007. "The Price Effects of Horizontal Mergers: A Survey," Working Papers 62, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Unknown & Dennis Carlton, 2009. "Why We Need to Measure the Effect of Merger Policy and How to Do It," CPI Journal, Competition Policy International, vol. 5.
  4. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
  5. Werden, G.J., 1992. "The History of Antitrust Market Delineation," Papers 92-8, U.S. Department of Justice - Antitrust Division.
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  7. repec:pri:cepsud:140weinberg is not listed on IDEAS
  8. 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 409-413, December.
  9. Edlin, Aaron S. & Farrell, Joseph, 2002. "The American Airlines Case: A Chance to Clarify Predation Policy," Department of Economics, Working Paper Series qt0wx7c4zf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  10. Oliver Budzinski & Isabel Ruhmer, 2008. "Merger Simulation in Competition Policy: A Survey," MAGKS Papers on Economics 200807, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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  13. Fabienne Ilzkovitz & Roderick Meiklejohn, 2006. "European Merger Control: Do We Need an Efficiency Defence?," Chapters,in: European Merger Control, chapter 2 Edward Elgar Publishing.
  14. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1201-1251.
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  17. Marie Goppelsroeder & Maarten Pieter Schinkel & Jan Tuinstra, 2006. "Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index," Tinbergen Institute Discussion Papers 06-074/1, Tinbergen Institute.
  18. 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.
  19. Orley Ashenfelter & David Ashmore & Jonathan Baker & Suzanne Gleason & Daniel Hosken, 2006. "Empirical Methods in Merger Analysis: Econometric Analysis of Pricing in FTC v. Staples," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(2), pages 265-279.
  20. Theodore Groves & Martin Loeb, 1979. "Incentives in a Divisionalized Firm," Management Science, INFORMS, vol. 25(3), pages 221-230, March.
  21. 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.
  22. 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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