Comment on “Merger Policy in the United States”

This paper comments briefly on a merger policy article by Dennis Mueller. It concurs with Mueller's judgment that X-efficiency consequences are of crucial relevance in developing a sound antitrust policy toward mergers. It agrees also that firms proposing mergers overstepping structural guidelines should be permitted an efficiencies defense, but it stresses the difficulties of making ex ante efficiency predictions.     

Comment on Dewey's “Merger Policy Greatly Simplified/Building on Keyes”

Professor Dewey's mock proposal for a new merger policy differs from Keyes' serious proposal in at least two important respects. First, the Dewey plan would accord different treatment to mergers which result in the growth of “large” industrial companies as compared with mergers which do not. No such size discrimination is recommended by Keyes. Second, the Dewey plan would allow even the former class of mergers to go forward after passing a purely procedural “test”. No genuine “efficiencies defense” would be required.     

Ten years of Merger Guidelines: A retrospective,critique, and prediction

The period since the 1982 Merger Guidelines is surveyed and assessed, including the 1992 Merger Guidelines. The 1982 Guidelines were an improvement in economic underpinnings and in merger policy, but the Guidelines' focus on short run market power is not a sensible basis for merger policy. The 1992 Guidelines continue this focus on short run market power, attempt to provide some clarifications of current enforcement policy, but add some questionable economics to the stew. The merger policy laid out in the 1992 Guidelines will not survive, since it does not suitably come to grips with the fundamental bases of the social costs and benefits of mergers and ignores ‘competitiveness’ issues.     

Merger law,policy, and enforcement guidelines in Canada

The paper describes Canada's merger law, policy, and enforcement activity. The contents of Canada's recently issuedMerger Enforcement Guidelines are explained, analyzed, and compared to the U.S. Merger Guidelines. The roles of concentration, market share, entry conditions, and efficiency defenses in Canadian merger cases are assessed. Reference is made to some recent decisions of Canada's Competition Tribunal, a body created as a part of the major competition policy reforms contained in the 1986 Competition Act.     

EFFICIENCY GAINS AND STRUCTURAL REMEDIES IN MERGER CONTROL*

This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains and must be submitted to an Antitrust Authority (AA) which might require partial divestiture for approval. From a merger policy perspective, this paper's main contribution is two‐fold. First, it shows that if mergers do not involve all firms in the industry, then merger remedies help the AA to increase consumer surplus only if assets are divested to competitors already in the market. Second, it presents a model which clarifies that there can only exist social costs to ‘over‐fixing’ the anticompetitive effects of a merger if merger review policy treats mergers as one‐time events. When a more dynamic view is taken of sequential merger review, then there can never be an ‘over‐fixing’ problem. In this case, however, remedies are shown to be needed to make myopic merger review optimal.     

The Efficiencies Defense in the 2010 Horizontal Merger Guidelines

We analyze the efficiencies defense that is contained in the 2010 Merger Guidelines, which provides the most current statement of the Agencies?? enforcement philosophy and procedure. Most of our attention centers on efficiencies in production, but we also address merger-specific efficiencies that may lead to improved product quality, enhanced services, or even to the introduction of entirely new products. We begin with the analytically clean case of merger-specific efficiencies that are accompanied by monopoly power. From the perspective of either consumer welfare or social welfare, this presents the welfare analysis that should guide merger policy. We, then, examine the errors that may arise due to the restricted role that efficiencies play in Section 7 enforcement. Finally, we close with some policy recommendations.     

Efficiency and competition: The reagan administration's legacy in merger policy

The full effects of the latest merger wave will not be evident for a number of years. Further, many forces other than the Reagan administration's permissive policy contributed to the surge in asset redeployment that characterized the 1980s. Nevertheless, the rationale for this policy should be evaluated as promptly as possible, since antitrust remains the nation's primary policy instrument for dealing with untoward effects of merger. Both empirical evidence and underlying theory contradict beliefs in the efficiency-enhancing character of most mergers and of the market for control. Several emerging and potential harmful effects are noted.     

Merger efficiency gains: Evidence from a large transport merger in france

Many industries are seeing an increase in concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. The policy debate shows that one of the key arguments put forward when supporting potential mergers is the possibility of realization of merger efficiency gains, specifically in the transport industry. Yet, there exists little empirical evidence on the actual effects of realized mergers on cost efficiencies. We exploit a large and highly debated merger that took place in the French transport industry to evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. We exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger on operating costs of merging transport groups. Our results show that, no matter the specification considered, we cannot conclude that the merger resulted in any merger specific efficiency gains for the merging parties. Our study relies on the use of several control groups and is robust to a great number of robustness checks as well as to the introduction of heterogeneous treatment effects, depending on the identity of the merging party, as well as the closeness of competition of local operators. Overall, our study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced.     

The Tenacity of Antitrust Mythology: Dissenting from Mueller

This comment registers the author's reservations about Professor D.C. Mueller's proposals for revising federal merger policy and about the arguments that he advances in support of them. The comment especially questions the validity of the practice of using concentration data as the basis for inferring the presence or absence of monopoly power. It is argued that the analytical foundation for this practice is non-existent and that the purely statistical foundation is weak. The author finds persuasive Mueller's argument that, in recent decades, the merger activity of large firms has done little or nothing to increase the efficiency of the American economy. He believes that, right or wrong, what drives antitrust is fear of corporate size and power, not fear of textbook monopoly. Therefore, he believes consideration should be given to Mueller's proposal that the ambitious merger projects of large firms should not be allowed to go forward unless they promise some gain in efficiency.     

Merger Control Policy Under China’s Anti-Monopoly Law

China??s merger policy and enforcement approaches since its Anti-Monopoly Law (AML) took effect in August 2008 are by and large based on the same conceptual framework that is employed in advanced economies. While China has shown a very fast learning capability in conducting competition analysis, further capacity building in China is crucial. There is no clear evidence of industrial policy considerations being at the forefront in the eight published decisions by the Ministry of Commerce to date, except for its very early decisions. We propose a competition-neutral principle, which requires that a competition test be conducted before, and independently from, any consideration of industrial policy and argue that industrial policy matters only for competition-neutral mergers. On a more technical level, if China adopts the total welfare standard, then its treatment of efficiencies and the meaning of sufficiency of entry post merger should be modified accordingly from the US/EU consumer-oriented model.     

Do Merger Efficiencies Always Mitigate Price Increases?

In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post‐merger prices under certain conditions. Specifically, when the degree of substitutability between the two insiders is not too high relative to that between an insider and an outsider, increased efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that efficiencies will necessarily mitigate the anticompetitive effects of the merger.     

On the desirability of an efficiency defense in merger control

We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority's decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.     

M&A advisory and the merger review process

Two firms propose a merger to the antitrust authority. They are uninformed about the efficiencies generated by the merger, but can hire an expert to gather information on their behalf. The authority is also uninformed about the merger’s efficiencies, but can run a costly internal investigation to learn them. We analyze the effect of the disclosure of the expert’s contract on consumer welfare, and show that consumers are not necessarily better off with disclosure. This possibility result hinges on a free-riding problem between expert and authority in the information acquisition game, and is more relevant in highly competitive industries.     

Efficiencies,market power and horizontal merger

In June 1982 the Justice Department issued itsMerger Guidelines which specify in terms of the Herfindahl index (H) what combinations of merger size and post-merger H are likely to lead to a merger challenge. This paper assesses theseGuidelines using Williamson's (1968) well-known model in which an optimal merger policy is viewed as one that considers both the price and cost consequences of merger. The Williamson model is recast in terms of H and changes in H and linked to theGuidelines. This allows an assessment of the welfare congequences of an industry merger for any given level of concentration and merger-produce changes in concentration. Among the conclusions are that, consistent with theGuidelines, higher values of H make socially successful mergers less likely, and a more appropriate, if perhaps not more feasible, focus for theGuidelines are coordination adjusted measures of concentration and merger size.     

The Antitrust Division: Economic Issues Presented in 2010–2011

The Antitrust Division of the US Department of Justice had a number of interesting cases during the last year. The merger between Comcast and NBC-Universal presented an interesting challenge of preserving existing competition from an emerging technology. The abandoned attempt by NASDAQ to acquire NYSE shed light on a number of competitive interactions between financial exchanges. Hospital contracts in Texas illustrated that exclusive dealing is still a violation of Section “NASDAQ’s Proposed Acquisition of NYSE” and will be pursued by the Antitrust Division. And, a number of cases as well as a new policy guide on the subject demonstrate that the Antitrust Division will work with parties and accept innovative remedies to eliminate competitive problems in ways that may better preserve efficiencies.     

Conglomerate mergers and subsequent industry effects

The focus of most studies of conglomerate mergers has been on the effects on companies involved. Of more direct relevance to antitrust policy is the question of industry effects of this type of merger. This article looks at eleven cases of “large firm/leading firm” conglomerate mergers completed between 1958 and 1970 and examines census data to see if structure or performance of the acquired “leading firm's” market was altered due to the merger. The results suggest that industry structure is not significantly affected, but that there may be adverse performance effects when the acquired firm is a leader in an unconcentrated market with substantial entry barriers.     

Merger policy greatly simplified: Building on keyes

This comment urges a recognition of the fact that the main goal of antitrust, as revealed in a century of consequences, is not economic efficiency or consumer protection but the dispersion of power and decision-making in the business world. Building on Lucile S. Keyes' proposal for improving merger guidelines, it argues that the “true” aims of merger policy can be more efficiently pursued by disallowing all mergers involving very large firms that cannot be justified on efficiency grounds and ignoring mergers involving all other firms.     

Proper Treatment of Buyer Power in Merger Review

In this paper, we assess the appropriate treatment of buyer power in merger review. We conclude that, for changes in bargaining outcomes due to a buyer merger to create efficiencies, it must be the case that, post-merger, the parties are able to arrive at a more optimal price schedule, perhaps due to reduced transactions costs. Empirical tests will be important to the evaluation of such efficiencies. We further conclude that, under certain conditions, powerful buyers may be able to prevent higher prices from a merger of suppliers. Once again, empirical tests should guide the evaluation of this merger defense.     

25 years of European merger control

We study the determinants of common European merger policy over its first 25 years, from 1990 to 2014. Using a novel dataset at the level of the relevant antitrust markets and containing all relevant merger cases notified to the European Commission, we evaluate how consistently arguments related to structural market parameters – dominance, rising concentration, barriers to entry, and foreclosure – were applied over time and across different geographic market definitions. On average, linear probability models overestimate the effects of structural indicators. Using non-parametric machine learning techniques, we find that dominance is positively correlated with competitive concerns, especially in markets with a substantial increase in post-merger concentration and in complex mergers. Yet, its importance decreased following the 2004 merger policy reform. Competitive concerns are also correlated with rising concentration, especially if entry barriers and foreclosure are of concern. The impact of these structural indicators in explaining competitive concerns is independent of the geographic market definition and does not change over time.