IDEAS home Printed from https://ideas.repec.org/p/doj/eagpap/200608.html
   My bibliography  Save this paper

Welfare Standards and Merger Analysis: Why not the Best?

Author

Listed:
  • Kenneth Heyer

    (Economic Analysis Group, Antitrust Division, Department of Justice)

Abstract

Over the past several decades, there has emerged a rough consensus among professional antitrust practitioners, and within the law and economics community generally, that the "competition" referred to in our antitrust statutes is not to be interpreted simply as pre-merger rivalry among entities. Rather, it is best viewed as a process, the outcome of which is welfare, with welfare-not "rivalry"--being the object of interest. Consistent with this interpretation, scholars, competition authorities, and the courts have come to treat antitrust law as condemning only those mergers whose effect may be substantially to reduce welfare. That having been said, there remains a question of which welfare standard to use, and exactly whose welfare to consider. Several candidates suggest themselves. I argue in this paper for using the so-called "Total Welfare" standard, rather than the more commonly employed "Consumer Welfare" standard. In doing so, I respond to three broad objections that have been raised. One is that use of a total welfare standard conflicts with antitrust law, or at least with legal precedent. A second is that employing a total welfare standard would be more costly for antitrust agencies than employing one or another flavor of a consumer welfare standard. A third is that the total welfare standard ignores important distributional considerations-considerations that are better treated under some form of consumer welfare standard. Each of these objections is evaluated, and ultimately found unpersuasive.

Suggested Citation

  • Kenneth Heyer, 2006. "Welfare Standards and Merger Analysis: Why not the Best?," EAG Discussions Papers 200608, Department of Justice, Antitrust Division.
  • Handle: RePEc:doj:eagpap:200608
    as

    Download full text from publisher

    File URL: https://www.justice.gov/atr/public/eag/221880.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Wang, Ruqu, 1995. "Bargaining versus posted-price selling," European Economic Review, Elsevier, vol. 39(9), pages 1747-1764, December.
    2. Daron Acemoglu & Joshua D. Angrist, 2001. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 915-957, October.
    3. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
    4. Inderst, Roman & Irmen, Andreas, 2005. "Shopping hours and price competition," European Economic Review, Elsevier, vol. 49(5), pages 1105-1124, July.
    5. Waehrer, Keith & Perry, Martin K, 2003. " The Effects of Mergers in Open-Auction Markets," RAND Journal of Economics, The RAND Corporation, pages 287-304.
    6. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    7. Kosfeld, Michael, 2002. "Why shops close again: An evolutionary perspective on the deregulation of shopping hours," European Economic Review, Elsevier, vol. 46(1), pages 51-72, January.
    8. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    9. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August.
    10. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-457, July.
    11. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 753-770.
    12. David, Douglas D & Holt, Charles A, 1996. "Consumer Search Costs and Market Performance," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 133-151, January.
    13. Ferris, J Stephen, 1990. "Time, Space, and Shopping: The Regulation of Shopping Hours," Journal of Law, Economics, and Organization, Oxford University Press, pages 171-187.
    14. Matthew O. Jackson & Thomas R. Palfrey, 1998. "Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining," Econometrica, Econometric Society, vol. 66(6), pages 1353-1388, November.
    15. Helmut Bester, 1988. "Bargaining, Search Costs and Equilibrium Price Distributions," Review of Economic Studies, Oxford University Press, vol. 55(2), pages 201-214.
    16. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, pages 408-419.
    17. Dean Corbae & Ted Temzelides & Randall Wright, 2003. "Directed Matching and Monetary Exchange," Econometrica, Econometric Society, vol. 71(3), pages 731-756, May.
    18. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-288, March.
    19. Wang, Ruqu, 1993. "Auctions versus Posted-Price Selling," American Economic Review, American Economic Association, pages 838-851.
    20. Alexander Raskovich, 2003. "Pivotal Buyers and Bargaining Position," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 405-426, December.
    21. Maria Arbatskaya, 2007. "Ordered search," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 119-126, March.
    22. Tasneem Chipty & Christopher M. Snyder, 1999. "The Role Of Firm Size In Bilateral Bargaining: A Study Of The Cable Television Industry," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 326-340, May.
    23. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-430, March.
    24. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-1150, September.
    25. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    26. Jim Engle-Warnick & Andreas Leibbrandt, 2006. "Who Gets the Last Word? An Experimental Study of the Effect of a Peer Review Process on the Expression of Social Norms," CIRANO Working Papers 2006s-12, CIRANO.
    27. Alexander Raskovich, 2006. "Competition or Collusion? Negotiating Discounts Off Posted Prices," EAG Discussions Papers 200601, Department of Justice, Antitrust Division.
    28. Perry, Motty & Wigderson, Avi, 1986. "Search in a Known Pattern," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 225-230, February.
    29. K. G. Binmore & M. J. Herrero, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 17-31.
    30. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, pages 408-419.
    31. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-849, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brennan, Timothy J., 2011. "Energy efficiency and renewables policies: Promoting efficiency or facilitating monopsony?," Energy Policy, Elsevier, vol. 39(7), pages 3954-3965, July.
    2. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, Elsevier.
    3. Russ Pittman, 2007. "Consumer Surplus as the Appropriate Standard for Antitrust Enforcement," CPI Journal, Competition Policy International, vol. 3.
    4. Dennis Carlton & Ken Heyer, 2007. "The Year in Review: Economics at the Antitrust Division, 2006–2007," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(2), pages 121-137, September.
    5. Le Pape, Nicolas & Zhao, Kai, 2014. "Horizontal mergers and uncertainty," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-31.
    6. Kamerbeek, S.P., 2009. "Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU," MPRA Paper 18064, University Library of Munich, Germany.
    7. Fiammetta Gordon & David Squires, 2008. "The Deterrent Effect of UK Competition Enforcement," De Economist, Springer, vol. 156(4), pages 411-432, December.
    8. Brennan, Timothy J., 2009. "Energy Efficiency: Efficiency or Monopsony?," Discussion Papers dp-09-20, Resources For the Future.
    9. Jarig Sinderen & Ron Kemp, 2008. "The Economic Effect Of Competition Law Enforcement: The Case Of The Netherlands," De Economist, Springer, vol. 156(4), pages 365-385, December.
    10. Budzinski, Oliver, 2012. "International antitrust institutions," Ilmenau Economics Discussion Papers 72, Ilmenau University of Technology, Institute of Economics.
    11. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," Working Papers 90/09, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    12. Ghosh, Arghya & Morita, Hodaka, 2012. "Competitor collaboration and product distinctiveness," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 137-152.
    13. Zimmerman, Paul R. & Carlson, Julie A., 2010. "Competition and cost pass-through in differentiated oligopolies," MPRA Paper 25931, University Library of Munich, Germany.
    14. Tsuyoshi Toshimitsu, 2017. "Analysis of Merger Control in A Network Products Market," Discussion Paper Series 169, School of Economics, Kwansei Gakuin University, revised Nov 2017.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:doj:eagpap:200608. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tung Vu). General contact details of provider: http://edirc.repec.org/data/atrgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.