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Abstract:
Robert Crandall and Clifford Winston set out to review and enlarge the body of scholarly evidence on the effect of antitrust policy on consumer prices. They ignore, however, the great weight of evidence supporting the two core elements of antitrust policy - criminal prosecution of cartel activity and challenging anticompetitive horizontal mergers. And their original empirical analysis relating to merger enforcement suffers from such serious methodological flaws that it sheds no new light on the issues.

Abstract:
This paper explains how basic microeconomics can be used to assess lost profits from patent infringement. The main suggested analysis is an adaptation of merger simulation. Observed prices and quantities are combined with estimated demand parameters to calibrate a model of the industry with infringement. Lost profits are then estimated by calculating an equilibrium without the infringing product(s). Simulation calculates the sales diversion, price erosion, and "quantity accretion" components of lost profits, and avoids the patent law analog to antitrust market delineation. Simulation provides a satisfactory methodology for assessing lost profits damages even in the presence of acceptable noninfringing substitutes. The facts of leading cases form the basis of illustrations.

Abstract:
This paper explains how basic microeconomics can be used to assess lost profits from patent infringement. The main suggested analysis is an adaptation of merger simulation. Observed prices and quantities are combined with estimated demand parameters to calibrate a model of the industry with infringement. Lost profits are then estimated by calculating an equilibrium without the infringing product(s). Simulation calculates the sales diversion, price erosion, and "quantity accretion" components of lost profits, and avoids the patent law analog to antitrust market delineation. Simulation provides a satisfactory methodology for assessing lost profits damages even in the presence of acceptable noninfringing substitutes. The facts of leading cases form the basis of illustrations.

Abstract:
This chapter first reviews the economic theory underlying the unilateral competitive effects of mergers, focusing on the Cournot model, commonly applied to homogeneous products; the Bertrand model, commonly applied to differentiated consumer products; and models of auctions and bargaining, commonly applied when a bidding process or negotiations are used to set prices. This chapter then reviews two classes of empirical methods used to make quantitative predictions of the unilateral effects of proposed mergers.

antitrust, mergers, unilateral effects

Abstract:
"Critical elasticity of demand" and "critical loss" analysis are now standard analytical tools for implementing the hypothetical monopolist paradigm for market delineation. Although these tools are highly useful, this paper presents three scenarios in which their standard application can be highly misleading and explains how the hypothetical monopolist paradigm can be fully and faithfully implemented in those scenarios. Only a tailored application of the hypothetical monopolist paradigm meets the rigorous admissibility tests applied by the courts since the Supreme Court's decision in Daubert.

Antitrust, Market Delineation, Mergers

Abstract:
Defending a challenged merger on the basis of synergies requires an analysis of the likely pass through to consumers of associated marginal cost reductions. This paper explores the nature and extent of that pass though with differentiated consumer products. Pass-through rates are shown to depend on demand curvature and idiosyncratic properties of particular demand functions. The marginal cost reductions necessary to fully compensate for the price-increasing effects of a merger, however, do not depend on these things. This implies a close relationship between pass-through rates and the price effects of mergers absent synergies and indicates that pass through should not be addressed as a discrete issue in merger cases. Finally, the paper examines ways in which the degree of competition can affect the three pass through effects; contrary to persistent contentions, greater competition easily may result in less pass through.

Abstract:
The U.S. Horizontal Merger Guidelines and guidelines issued by enforcement agencies around the world employ the hypothetical monopolist paradigm to delineate relevant markets, but they provide only an imprecise and incomplete algorithm for implementing that paradigm. This paper fills the gap by providing a mathematically precise algorithm for market delineation in merger cases based on the hypothetical monopolist paradigm.

Antitrust, Market Delineation, Mergers

Abstract:
Horizontal mergers give rise to unilateral anticompetitive effects if they cause the merged firm to act less intensely competitive than the merging firms, while non-merging rivals do not alter their competitive strategies. This chapter describes the economic theory underlying unilateral competitive effects from mergers and the quantitative application of this theory in predicting the unilateral price effects of proposed mergers. This chapter focuses on unilateral effects in homogeneous products industries described by the Cournot model and unilateral effects in differentiated products industries described by the Bertrand model.

antitrust, mergers, unilateral effects

Abstract:
The Weyerhaeuser case presents the scenario of a firm that successfully engages in exclusionary conduct, obtains a monopsony, and yet does not have any potential to injure the end users of its products. Rather, the conduct has the immediate effect of injuring competitors, and the longer-term effect of injuring input sellers. Commentators have argued that the antitrust laws are indifferent to latter injuries because they are concerned only with "consumer welfare." This essay demonstrates that Congress was, and the courts have been, far from indifferent to the plight of sellers exploited by monopsonies. This essay shows that Sherman Act cases referring to "consumer welfare" have not indicated that they meant end-user welfare rather than aggregate welfare. Finally, this essay argues that promoting consumer welfare is a goal of the Sherman Act, but only a goal, and that making end-user welfare the touchstone under the Act could have extraordinarily undesirable consequences.

antitrust, monopsony, welfare

Abstract:
We investigate the relationship between the price effects of mergers in Bertrand oligopoly and the rates at which merger synergies are passed through to consumers in the form of lower prices. Our main conclusion is that pass-through rates and price effects are closely related. In particular, when a merger would cause large price increases absent synergies, the pass-through rate is high. This close relationship implies that pass-through and price effects should not be addressed independently in any phase of a merger investigation. We show that in a leading merger case, the low estimated pass-through rate and the relatively large predicted merger effect most likely were inconsistent.

Pass-through, merger, efficiencies, Bertrand, antitrust

Abstract:
In the competitive analysis of mergers, "calibrated economic models" are standard, formal models, particularly monopoly and oligopoly models, in which the values of the key parameters are set on the basis of observable features of the industry under review. Calibrated economic models offer three advantages in merger analysis: (1) They bring key issues into sharper focus by making assumptions explicit and identifying which factors are critical and precisely how they matter. (2) They add accuracy by quantifying issues of importance and relying on calculations rather than intuition. (3) They enhance persuasiveness in a judicial proceeding by making the analysis more concrete and better grounded in both the facts of case and economic theory. The paper illustrates these advantages in market delineation and in the prediction of price and other effects of mergers through the use of simulation.

Abstract:
The Department of Justice alleged American Airlines violated section 2 of the Sherman Act when it added substantial capacity to four routes after smaller rivals had entered. The case raised interesting issues relating to mechanism through which the capacity additions could have excluded competition and the proper cost-based test for assessing the legality of these capacity additions under Section 2. However, the court of appeals' narrow and pragmatic opinion affirming summary judgment for American had little to say about these issues and nothing to say about several alternative grounds for summary judgment cited by the district court.

antitrust, predation, airlines

Abstract:
The Federal Rules of Evidence and controlling Supreme Court precedents make expert economic testimony in antitrust cases inadmissible unless: (1) the witness is expert in relevant aspects of economics; (2) the testimony is well grounded in those aspects of economics; and (3) the testimony applies the tools of economics to the facts of the case. This chapter explains how these principles have been and should be applied. This chapter argues that strict application of these principles improves the quality and clarity of economic testimony in antitrust cases, increases the sophistication of the discourse in antitrust litigation, and enhances the accuracy of judge and jury decisions.

Daubert, expert testimony

Abstract:
We study mergers among firms that compete by simultaneously choosing price and location. The merged firm moves its two products away from each other to reduce cannibalization, and the non-merging firms move their products in between the merging firm's products. Post-merger repositioning increases product variety, which benefits consumers, but repositioning also affects post-merger prices in two ways: There is upward pressure on price as products spread out, but the merged firm's incentive to raise prices is reduced as its products are moved away from each other. Either effect can dominate, although the latter is likely to be the more important. We use a novel technique known as the stochastic response dynamic to find equilibria, which does not require the computation of first-order conditions.

antitrust, game theory, economic modeling

Abstract:
The discourse on competition policy often uses the term "consumer welfare" but rarely is clear about its meaning or role. I address the meaning and role of "consumer welfare" in three discrete essays. The first reviews key economic concepts and the usage of the term "consumer welfare" then outlines distinct ways in which consumer welfare considerations could be relevant in competition law. The second essay examines the meaning and role of consumer welfare in merger control. It concludes that the welfare of all consumers should be considered, but short-term price effects in the relevant market nevertheless should be the initial focus in assessing proposed mergers. The third essay examines the meaning and role of consumer welfare in competition law on concerted practices and potentially exclusionary conduct by individual competitors. It concludes that promoting the welfare of all consumers is the ultimate goal of the law but effect on consumer welfare is not the test for legality nor generally even an appropriate guide for the application of the law.

antitrust, competition policy, consumer welfare

Abstract:
Contrary to the suggestion of Williamson (1968), a merger enhancing total social welfare through the creation of substantial efficiencies nevertheless may violate current antitrust law in the United States, which considers only the effects of mergers on consumers. To avoid violating antitrust laws, merging firms could contract with a third party in a manner that offsets the incentive created by a merger to raise price or restrict output.

antitrust, merger, Nash Equilibrium, merger remedy, oligopoly

Abstract:
The downstream effects of mergers between manufacturers of differentiated consumer products are partly determined by the relationship between the merging manufacturers and retailers. That relationship may be such that the retail price effects of the merger are exactly those if the manufacturers sold directly to consumers, and that relationship may be such that the merger produces similar effects with subtle differences, including the possibility of price decreases for non-merging products. Alternatively, that relationship may be such that consumer prices do not change following a merger, which instead shifts profits to the merged firm.

vertical restraints, pass-through, mergers, retailing

Abstract:
In differentiated products industries, the extent of the pass through of merger-specific marginal-cost reductions is determined largely by the curvature of demand and idiosyncratic properties of particular functional forms for demand. Thus, addressing pass through as a separate and distinct component of merger analysis is likely to be unproductive. An alternative approach is to determine whether merger-specific marginal-cost reductions are sufficient to offset entirely the price-increasing effects of a merger. In addition, pass-through rates are closely linked to the price-increasing effects of mergers; demand properties that lead to large price increases from mergers absent cost reductions also lead to high pass-through rates. This implies the existence of simple and practical consistency checks on price increase and pass-through predictions.

mergers, efficiencies, pass through

Abstract:
Horizontal mergers give rise to unilateral anticompetitive effects if they cause the merged firm to act less intensely competitive than the merging firms, while non-merging rivals do not alter their competitive strategies. This chapter describes the economic theory underlying unilateral competitive effects from mergers when prices are set through an auction or bargaining process. In the auction context, this chapter also describes the quantitative application of this theory in predicting the unilateral price effects of proposed mergers.

mergers, auctions, bargaining

Abstract:
Agencies administering competition policy toward the conduct of single competitors must avoid making false positive findings of exclusionary conduct, which would chill aggressive competition, and must avoid denying successful competitors the fruits of their efforts, which would undermine incentives to innovate and take risks. To avoid these pitfalls, this essay argues that the competition policy serving consumers best combines form-based elements with effects-based elements. Desirable form-based elements include a rigorous dominance screen and safe harbours for narrow categories of conduct, and desirable effects-based elements include the "no economic sense" test, which deems conduct exclusionary only if it would make no economic sense but for a tendency to eliminate competition. In support of this argument, this essay articulates fundamental premises and precepts for competition policy, develops the logic behind them, and explains how they can be usefully implemented.

Article 82, Dominance, Exclusionary Conduct, Safe Harbours

Abstract:
The EC Merger Regulation (ECMR) was revised in 2004 to make the substantive test for merger control whether the merger would "significantly impede effective competition [SIEC] in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position". This SIEC test, which replaced the prior dominance test, was intended to work much like the substantial lessening of competition (SLC) test used in Australia, Ireland, the UK and the US.

Alberto Heimler explains that the change in the substantive merger test filled a perceived gap with respect to unilateral effects. He argues, however, that the gap was only imagined. In the context of two models giving rise to unilateral effects, he contends that significant anticompetitive effects arise only if the merged firm reasonably could be viewed as dominant. He also argues that the change in the substantive test has not led to additional prohibitions premised on unilateral effects, but it did create a danger of excessive enforcement.

My analysis of the models Heimler mentions indicates that the gap was real and potentially important. Moreover, stretching the concept of dominance to reach all significant anticompetitive effects from mergers would divorce the concept from the plain meaning of the word "dominance" and thereby create a serious risk of excessive enforcement under Article 82. In contrast, I doubt that the risk of excessive merger enforcement is substantial and think it worth taking.

EC Merger Regulation, merger control, SIEC, SLC

Abstract:
Under the leadership of Chief Justice John G. Roberts, Jr., the Supreme Court has demonstrated a willingness to cast aside the Court's prior antitrust decisions. The qualified per se rule applicable to tying surely will not survive much longer, but what else might be in store is more speculative. This essay identifies four decisions relating to competitor collaboration in which the Court's prior application of the per se rule does not comport with its modern decisions. In two of the cases, the conduct likely would be found lawful today; while in the other two, the conduct most likely still would be condemned but only after an abbreviated application of the rule of reason. This essay also identifies three legal doctrines ready for retirement. They are the absolute requirement of market delineation as a predicate for merger analysis, the outmoded approach to market delineation of Brown Shoe, and the unhelpful formulation of the monopolization offense in Grinnell.

K21, L41