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Price Effects of Horizontal Mergers
TLDR
In this article, the authors analyze the competing price effects of market power increases and efficiency gains in the most relevant context: significant mergers in concentrated markets and derive four general oligopoly models and evaluate them over all reasonable ranges for their underlying parameters.Abstract:
When should the government challenge a merger that might increase market power but also generate efficiency gains? The dominant belief has been that the government and courts should evaluate these mergers solely in terms of economic efficiency. Congress, however, wanted the courts to stop any merger significantly likely to raise prices. Substantially likely efficiency gains should therefore affect the legality of mergers to the extent that they are likely to prevent price increases. This standard is more strict than the economic efficiency criterion, because the latter would permit mergers substantially likely to lead to higher prices, if sufficient efficiency gains were substantially likely.The authors analyze the competing price effects of market power increases and efficiency gains in the most relevant context: significant mergers in concentrated markets - oligopoly. They derive four general oligopoly models and evaluate them over all reasonable ranges for their underlying parameters. This methodology avoids biases due to overly restrictive assumptions.By using the Merger Guideline standards and data from mergers that the Federal Trade Commission closely examined, the authors analyze empirically relevant tradeoffs between market power increases and efficiency gains. They find that decreases in marginal costs of 0 to 9% could be necessary to prevent price gains from mergers typical of those the government regularly evaluates. Cost savings in the upper portions of this range are far larger than those that previous authors have suggested would be necessary to compensate for efficiency losses from most mergers. They are also far greater than efficiency gains that one could realistically predict from virtually any merger. Moreover, if a merger significantly increased the probability of collusion, the required cost savings would be even greater.The authors' models and a large number of practical considerations suggest that implicit consideration of efficiency gains, through adjustment of the standards for horizontal mergers, would be better than an explicit case-by-case efficiency defense.read more
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References
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Journal ArticleDOI
Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium
TL;DR: In this paper, the authors evaluate an unnoticed comparative-static implication of this approach: some exogenous mergers may reduce the endogenous joint profits of the firms that are assumed to collude.
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The Economists and the Problem of Monopoly
TL;DR: For much too long a time, students of the history of the American antitrust policy have been at least mildly perplexed by the coolness with which American economists greeted the Sherman Act.
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The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality
TL;DR: In this article, the authors define restricted distribution as a marketing system in which the manufacturer places restrictions on competition among the distributors or dealers that provide its goods either to lower links in the chain of distribution or to the ultimate consumer.
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Judicial Review of Manufacturers' Conscious Design Choices: The Limits of Adjudication
Henderson,A James +1 more
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The Accuracy of Traditional Market Power Analysis and a Direct Adjustment Alternative
TL;DR: Their approach measures market power using the Lerner index the percentage by which price exceeds marginal cost and thus implies that a dominant firm's market power is inversely proportional to the elasticity of demand for the firm's product.