Assessing horizontal mergers under uncertain efficiency gains

Markets in Merger Analysis

Unilateral Effects Under the Guidelines: Models, Merits, and Merger Policy

THE LEADERSHIP of the Antitrust Division of the U.S. Department of Justice has, over the past two years, emphasized that the department's 1984 merger guidelines are a sound prescription for horizontal merger enforcement, that as a matter of policy they are being applied in enforcement decisionmaking, and that there may be a need for and of the guidelines.1 This paper examines some facets of the antitrust analysis of horizontal mergers in the light shed by industrial organization (10) theory, in order to stimulate discussion of some possible directions for fine-tuning and clarification of the guidelines. I focus on the possible anticompetitive effects of horizontal mergers and the role of potential entry in merger analysis. However, to set the context for these subjects, it will be helpful first to sketch the nature of the merger guidelines.

The author considers a duopoly setting consisting of two manufacturer-retailer pairs in which the observable contract between each manufacturer-retailer pair specifies a two-part tariff. Without intraband competition, the author shows that an upstream merger is anticompetitive under very general demand and cost conditions. Downstream merger is analyzed using linear demand and constant marginal cost and is shown not to be anticompetitive both with and without intraband competition and for both price and output competition between retailers in the premerger regime. Copyright 1995 by Blackwell Publishing Ltd.

Horizontal mergers are usually under the scrutiny of antitrust authorities due to their potential undesirable effects on prices and consumer surplus. Ex-post evidence, however, suggests that these effects do not always take place and even relevant mergers may end up having negligible price effects. The analysis of mergers in the context of non-localized spatial competition may offer a further interpretation to the ones proposed in the literature: in this framework both positive and zero price effects are possible outcomes of the merger activity.

Discussion of Dr Green's Paper

Quantifying the effects from horizontal mergers in European competition policy

This paper addresses the corporate mergers and reorganizations likely to be involved in the further integration of the European Community identified as ‘Europe in 1992’. Speculation on the future is as cheap as it is unreliable. However, the past contains lessons about mergers and international economic integration clearly relevant to the European Community's prospects. The process of international economic integration has been proceeding slowly but steadily throughout the industrial world since the Second World War, as falling relative costs of international transportation, travel and communication have enlarged the internationally traded proportions of tradable-goods outputs and promoted multinational enterprises and transnational corporate alliances and contracts. These trends have been accompanied by changes in the organization of international markets through the expansion of intraindustry and intracorporate trade. They may also be associated with the increase in the 1980s of transnational mergers and acquisitions within international industries. The interpretation of these mergers is the focus of this paper. If the recent wave of international horizontal mergers can be associated with aspects of international economic integration, we can hope to predict merger activity associated with closer integration in the European Community and anticipate any problems for public policy that integration may entail. The economic analysis of horizontal mergers is in an unsettled state, and one goal of this paper is to provide an untraditional explanation. Two classic explanations exist. Mergers between direct rivals can give rise to monopoly rents even if entry is not blockaded. Recent research has, however, emphasized the limitation on capture of this gain because the consolidating firms must contract their outputs. Attainment of scale economies is the other classic goal for mergers.

A general linear regression model for the usual least squares estimated rate of change (slope) on censoring time is described as an approximation to account for informative right censoring in estimating and comparing changes of a continuous variable in two groups. Two noniterative estimators for the group slope means, the linear minimum variance unbiased (LMVUB) estimator and the linear minimum mean squared error (LMMSE) estimator, are proposed under this conditional model. In realistic situations, we illustrate that the LMVUB and LMMSE estimators, derived under a simple linear regression model, are quite competitive compared to the pseudo maximum likelihood estimator (PMLE) derived by modeling the censoring probabilities. Generalizations to polynomial response curves and general linear models are also described.

Common Ownership and Mergers between Portfolio Companies

Horizontal merger analysis

Managing mergers: Why people first can improve brand and IT consolidations

Unilateral Effects Analysis and the Upward Pricing Pressure Model: Evidence from the Federal Trade Commission

The purpose of this work was to develop and evaluate the accuracy of several predictive models of variation in tumor volume throughout the course of radiation therapy. Nineteen patients with oropharyngeal cancers were imaged daily with CT-on-rails for image-guided alignment per an institutional protocol. The daily volumes of 35 tumors in these 19 patients were determined and used to generate (1) a linear model in which tumor volume changed at a constant rate, (2) a general linear model that utilized the power fit relationship between the daily and initial tumor volumes, and (3) a functional general linear model that identified and exploited the primary modes of variation between time series describing the changing tumor volumes. Primary and nodal tumor volumes were examined separately. The accuracy of these models in predicting daily tumor volumes were compared with those of static and linear reference models using leave-one-out cross-validation. In predicting the daily volume of primary tumors, the general linear model and the functional general linear model were more accurate than the static reference model by 9.9% (range: -11.6%-23.8%) and 14.6% (range: -7.3%-27.5%), respectively, and were more accurate than the linear reference model by 14.2% (range: -6.8%-40.3%) and 13.1% (range: -1.5%-52.5%), respectively. In predicting the daily volume of nodal tumors, only the 14.4% (range: -11.1%-20.5%) improvement in accuracy of the functional general linear model compared to the static reference model was statistically significant. A general linear model and a functional general linear model trained on data from a small population of patients can predict the primary tumor volume throughout the course of radiation therapy with greater accuracy than standard reference models. These more accurate models may increase the prognostic value of information about the tumor garnered from pretreatment computed tomography images and facilitate improved treatment management.

This paper aims to provide empirical evidence on the relationship between inflation targeting and the pass-through effect from exchange rate to consumer prices, focusing on the case of Mongolia. The study estimates a vector-autoregressive model, and examines the impulse responses of consumer prices to the shock of exchange rate for the pre-inflation targeting period and the post-inflation targeting period. The empirical analysis identified the existence of the pass-through effect during the pre-inflation targeting period and the loss of the pass-through during the post-inflation targeting period. It was speculated that the loss of the pass-through comes from the “forward-looking” monetary policy rule in Mongolian inflation targeting, so that it can work on the expectations of domestic agents such that they are less inclined to change prices in response to a given exchange rate shock.