Unilateral Effects in Merger Analysis: Models,Merits, and Merger Policy

This paper models the Federal Trade Commission’s (FTC) unilateral effects merger policy using a sample of 192 investigations undertaken between 1993 and 2010. Statistical analysis shows that the number of significant rivals represents a reasonable structural proxy for the FTC’s merger challenge decision, although other variables, such as impediments to entry, fringe share, clear evidence of head-to-head competition between the merging firms, competitive effects’ evidence, and efficiency-related proxies, also affect the decision to challenge a merger. Some of these variables suggest that the innovations in the 2010 Merger Guidelines had already been applied in FTC merger analysis.     

Economics and Antitrust Enforcement: The Last 25 Years

Abstract

Economics has reshaped antitrust enforcement over the last quarter century. Its impact has been most dramatic in merger analysis, with the shift toward unilateral effects theories and away from market concentration-related theories of collusion. Progress on both the theoretical and empirical fronts has also changed enforcement priors and competitive analyses concerning vertical restraints and monopolization. Economists also have made valuable assessments of the effectiveness of antitrust enforcement, though more work in this area is needed.     

Expert Report in United States v. Interstate Bakeries Corp. and Continental Baking Co.

This is a condensed antitrust analysis of the proposed merger of two leading bakers of white pan bread. The traditional structural analysis is supplemented by merger simulation, which estimates the likely price effects of the merger.     

The Use of the Logit Model in Applied Industrial Organization

Qualitative choice models, such as the logit model, can capture important firm and product asymmetries. This paper surveys use of the logit model in industrial organization, with special focus on its application to merger analysis. The basic model and its motivation are reviewed, as is its estimation. Discussed in some detail is the use of the logit model to predict the price and welfare effects of horizontal mergers in differentiated products industries. Simulation using a qualitative choice model is argued to be far superior to traditional structural analysis. Logit merger simulations have the particular virtues of low informational and computational burdens and the use of the logit model can be motivated as reflecting a diffuse prior on the structure of demand.     

Simulating Partial Asset Divestitures to 'Fix' Mergers

In this paper, we apply and extend merger simulation methodology to analyze the effectiveness of partial divestitures as a 'fix' to remedy the possible anticompetitive effects of horizontal mergers. Typically, antitrust agencies require merging firms to divest assets so that the status quo before the merger is restored, that is, they favor a 'full divestiture'. We focus on the effectiveness of a partial divestiture as an antitrust remedy (where a subset of products owned by the merging firms is spun off). Although this is not the type of full divestiture favored by antitrust agencies, we argue here that a partial divestiture could leave consumers better off after the merger than they were before - under certain conditions. Using a real-world example, we show how divesting a relatively close substitute creates competition that offsets the anticompetitive effects of combining products that are relatively distant substitutes. This result stands even when the divestee is moderately inefficient.     

Do Nonprofit Hospitals Exercise Market Power?

Several theories of nonprofit hospitals behavior predict that nonprofit hospitals behave in the consumer interest and thus do not exercise market power. If these theories are correct, then antitrust enforcement of hospital mergers should be restricted only to those markets in which a nonprofit hospital cannot offset anticompetitive behavior by for-profit hospitals. In this paper, we examine the relationship between price and market concentration among nonprofit hospitals in California in 1993. We find that nonprofit hospitals set higher prices in more concentrated markets. This result suggests that antitrust enforcement should challenge those mergers of nonprofit hospitals that create market power without creating offsetting efficiencies.     

欧共体合并控制改革探析

2001年至2004年间,欧盟对合并控制制度进行了影响深远的改革.改革的导火线是欧盟委员会发表的<绿皮书>和欧洲初审法院连续撤销欧盟委员会的三项禁止企业合并的决定;改革的根本原因在于合并控制制度本身存在的问题.作为改革的成果,2004年欧盟委员会颁布了新的<合并条例>、<横向合并审查指南>和<合并调查最佳实践指南>三部法律条文,重组了执法部门竞争总司.欧盟合并控制制度改革的经验,可为我国合并控制立法借鉴.     

Supramonopoly: Theory and Evidence from the US Air Passenger Service Markets

A supramonopoly is the market structure of a homogeneous good that is priced higher than the monopoly level. We present evidence of supramonopoly in the US air passenger service. For four airline mergers during the period of 1993 to 2009, we identify routes that dropped fares for no other reason than the increase in market power due to merger. Therefore each of those routes had fare higher than the monopoly level before the merger to monopoly. We explain supramonopoly as the result of a cartel with strongly punitive matching rules. We also discuss the striking implications for antitrust and regulatory policies.     

Finding Market Power in Electric Power Markets

As part of the regulatory review of electric utility mergers in the United States, the Federal Energy Regulatory Commission requires utilities to submit market power studies. The Commission has specified a detailed method for calculating market concentration in these studies.This paper shows that one can simulate the actual price effects from the merger by using similar data and models. Using the merger between Union Electric and Central Illinois Public Service Company as an example, this paper demonstrates that the Commission's method is unsound and often identifies competitive problems that are not likely to exist.     

Predicting the Price Effect of Mergers with Polynomial Logit Demand

We propose a polynomial logit model to quantify the price effects of mergers in a static Nash setting. The proposed model is parsimonious in parameters and is shown to have excellent predictive power, rivaling the in-sample and out-of-sample predictive accuracy of the widely-used AIDS model.The analysis, using actual scanner data on bread sales, demonstrates that a linear logit model is likely to over-estimate the merger price effect.     

Recent SEC prosecution and insider trading on forthcoming merger announcements

While trading on nonpublic information is illegal, the enforcement of this law has been elusive, particularly in the area of trading in advance of merger announcements. We examine the impact of insider trading on daily stock price changes for firms identified by the SEC in the Antoniu-Newman insider trading case. Using residual analysis, the abnormal returns occuring prior to the announcement are calculated and compared with a sample of 188 typical merger candidates not identified in the Antoniu-Newman case to determine whether or not there was an unusually large market reaction prior to the forthcoming merger announcement on the subset of merger candidates involved in the court procedure.     

Economies as an Antitrust Defense Revisited: The Welfare Trade-offs and Safe Harbors

This paper incorporates a Cournot model of oligopoly pricing into Williamson’s (1968a) model to assess the welfare effect of a merger that yields economies and market power simultaneously. The results show: (i) in most cases, economies from mergers can offset price increases due to market power such that there are positive net allocative effects, and (ii) the safe harbors in the merger guidelines may fail to screen out mergers correctly. The reliability, however, can be improved by considering cost savings and price elasticities in addition to the current use of increases in HHI and post-merger HHIs.     

An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control

This paper is a case study of a Japanese merger control in the airline industry. The objective is to investigate the underlying principles of the Fair Trade Commission of Japan (JFTC) through a domestic merger on airlines, where reports are available. From applying a checklist arranged by Röller et al. (Working Paper No. 543, The Research Institute of Industrial Economics, 2000), the merger control policy of the JFTC is competition-oriented, systematic designed and transparent. But the direction of the policy is a kind of regulatory one.     

Processing of discrimination charges by EEOC

The U.S. Equal Employment Opportunity Commission (EEOC) is the principal enforcement agency for equal employment law. Created by Title VII of the 1964 Civil Rights Act, the Commission won considerable influence over personnel management through favorable opinions in court cases. Moreover, the 1972 amendments to Title VII granted additional enforcement powers to the Commission. Yet there is little readily available information on how the Commission has exercised these powers. This article examines EEOC's procedure for handling charges of discrimination. It then presents statistics that indicate some of the problems EEOC has had in managing its growing work load. Finally, it discusses how such problems impede the fair and effective enforcement of equal employment law.     

Digitalisierung: neue Aufgreifkriterien der Fusionskontrolle in der 9. GWB-Novelle

The Ninth amendment of the German Competition Act introduces new merger control thresholds. These thresholds are designed to close an enforcement gap that is especially found in parts of the digital economy. As the takeover of Facebook and WhatsApp revealed, traditional turnover-based thresholds are inapplicable to business models prevalent in some parts of the digital economy. The amendment addresses these limitations and specifically introduces a transaction value-based threshold that will enable the Federal Competition Authority to carry out merger control in certain mergers with high transaction values and low turnovers.     

An Introduction to the Symposium on the Use of Simulation in Applied Industrial Organization

Simulation offers a rigorous methodology for addressing policy or litigation issues that require a comparison of an observed state of the world with an unobserved one. Simulation employs a calibrated, structural oligopoly model to describe the unobserved state of the world. Calibration involves reliance on real-world observations to set the key parameter values in the model. Simulation is an increasingly important tool of the industrial organization economist, particularly in analyzing the competitive effects of mergers. Papers in this symposium illustrate merger simulations in a variety of contexts and one other application of simulation.     

Managerial labor-market discipline and the characteristics of merger and acquisition transactions

This study evaluates how state regulation of noncompetition agreements affects merger and acquisition activity. Noncompetition agreements put restrictions on postemployment activities, thereby reducing management mobility and forcing top managers to bear the long-term consequences of their corporate decisions. In this sense, state regulation of noncompetition agreements functions as a mechanism to align management's interests with those of the shareholders when management makes major corporate decisions. To examine this hypothesis empirically, this study tests whether the legal enforcement of noncompetition agreements across states affects the choice of payment methods, the premium paid for targets, and the acquirers' abnormal returns on their merger or acquisition activity. The results suggest that stricter enforcement of noncompetition agreements significantly reduces the likelihood of using stock in takeovers and the premiums paid for targets. In addition, the study documents that stronger enforcement of noncompetition agreements is related with more favorable market reactions for large acquirers.     

Some aspects of merger control in the EC

The author elucidates the basic features of the EC Commission’s guidelines proposal for a European merger control and examines the various problems which may arise.     

Reforming European Merger Review: Targeting Problem Areas in Policy Outcomes

This paper is an attempt to derive priorities for the reform of European merger policy from observed problems with decision making in merger cases. We identify problems in the application of theory and empirical method as well as the impact of resource constraints and the potential for systematic decision bias. In contrast to the intense debate about the merits of a switch from a dominance criterion to a significant lessening of competition test, we find that such a switch would not effectively address any of the problems in Commision decision making on mergers. Similarly, the lack of an efficiency defense does not seem to explain any of the weaknesses of European merger policy. In contrast, we find that most of the problem areas identified in current merger control practice can be effectively addressed by reforming the merger procedure, the internal organization of merger control in the Commission, as well as addressing resource issues. Together with carefully crafted merger guidelines these should have strong priority for the reform of merger policy in Europe.     

Antitrust Issues in Defining the Product Market for Hospital Services

In this paper we examine the standard product market relied on by the courts and antitrust agencies in hospital mergers-acute care, inpatient services-and consider whether narrower or broader alternatives may be more appropriate to assess the competitive effects of a hospital merger. To examine how much disaggregation of the standard product market definition may matter for the definition of relevant geographic markets and concentration, we considered patient flows and concentration for the overall inpatient 'cluster' and more disaggregated categories of service for two regions of California: San Luis Obispo and Sacramento. We find that a disaggregated approach may involve a relatively small number of inpatient service categories, that the overall cluster masked some variability in the underlying patient flows by service category, and that in San Luis Obispo, the overall cluster masked considerable detail in concentration at the service category level, which appeared to have been much less true in Sacramento.