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Concentration-Based Inference for Evaluating Horizontal Mergers

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  • Paul S. Koh

    (Yonsei University)

Abstract

Antitrust authorities routinely rely on market concentration measures to assess the potential adverse effects of mergers on consumer welfare. Using a first-order approximation argument with logit and CES demand, I derive the relationship between the welfare effect of a merger on consumer surplus and the change in the Herfindahl-Hirschman Index (HHI). My results suggest that merger harm is correlated with the merger-induced change in HHI, and the proportionality coefficient depends on the price responsiveness parameter, market size, and the distribution of market shares within and across the merging firms. I present numerical validation of my formula along with an empirical illustration.

Suggested Citation

  • Paul S. Koh, 2025. "Concentration-Based Inference for Evaluating Horizontal Mergers," Working papers 2025rwp-266, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2025rwp-266
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    References listed on IDEAS

    as
    1. Froeb, Luke M. & Werden, Gregory J., 1998. "A robust test for consumer welfare enhancing mergers among sellers of a homogeneous product," Economics Letters, Elsevier, vol. 58(3), pages 367-369, March.
    2. 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.
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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