Pass-Through Rates and the Price Effects of Mergers

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.

Keywords: Pass-through, merger, efficiencies, Bertrand, antitrust

JEL Classifications: C72, L41

Working Paper Series