Durable goods and horizontal merger analysis

Merger analysis based on standard HHI calculations generally may not fully consider the impact of product durability and hence may significantly bias enforcement efforts. Using an inverse demand equation modified to include a shift parameter linked to the installed base, this paper develops a Durability Adjusted HHI (DAHHI) measure of concentration. DAHHI analysis exposes two potential biases in standard HHI analysis: excessive enforcement in durable goods industries is likely using standard HHI analysis, and Merger Guidelines' thresholds are set too high for non-durable goods industries and too low for durable goods industries. Using the DAHHI methodology, the paper proposes corrections to both biases.I wish to thank Miriam Culjak, John de Figueiredo, Greg Rosston, Brian Silverman, Pablo Spiller, David Teece, Oliver Williamson, and two anonymous referees for their helpful comments. Also, I wish to thank the Law and Economics Consulting Group for providing the opportunity to investigate this subject. All opinions and errors are the sole responsibility of the author.