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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. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Werden, G.J., 1992. "The History of Antitrust Market Delineation," Papers 92-8, U.S. Department of Justice - Antitrust Division.
  3. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  4. Bergstrom, Theodore C. & Varian, Hal R., 1985. "Two remarks on Cournot equilibria," Economics Letters, Elsevier, vol. 19(1), pages 5-8.
  5. Gregory Werden, 2008. "Beyond Critical Loss: Properly Applying the Hypothetical Monopolist Test," Antitrust Chronicle, Competition Policy International, vol. 3.
  6. Edlin, Aaron S. & Farrell, Joseph, 2002. "The American Airlines Case: A Chance to Clarify Predation Policy," Competition Policy Center, Working Paper Series qt32h8b40m, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  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. 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.
  9. 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.
  10. Federico Echenique, 1999. "Comparative Statics by Adaptative Dynamics and the Correspondence Principle," Documentos de Trabajo (working papers) 2099, Department of Economics - dECON.
  11. Volker Nocke & Michael D. Whinston, 2008. "Dynamic Merger Review," NBER Working Papers 14526, National Bureau of Economic Research, Inc.
  12. 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.
  13. 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.
  14. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  15. 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.
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