Efficiency Considerations in Merger Enforcement

Abstract

This is one of the first articles to demonstrate that the primary goal of antitrust is neither exclusively to enhance economic efficiency, nor to address any social or political factor. Rather, the overriding intent behind the merger laws was to prevent prices to purchasers from rising due to mergers (a wealth transfer concern). This is the first article to show how to analyze mergers with this goal in mind. Doing so challenges the fundamental underpinnings of Williamsonian merger analysis (which assumes mergers should be evaluated only in terms of net efficiency effects).

In this and three related articles we re-do the Williamsonian tradeoff, using price to consumers, instead of net efficiencies, as our focus. We show how a price focus would require substantially more efficiencies to justify an otherwise anticompetitive merger. We demonstrate this by calculating how large the necessary efficiency gains would have to be to prevent price increases under different market conditions. We also show that under efficiency analysis even a tiny cost savings would justify almost any merger, so a purely efficiency-based approach effectively would negate the anti-merger laws! Finally, we demonstrate that price analysis is much more predictable and easier to administer than efficiency analysis.

Keywords: Antitrust, Mergers, Goals of Antitrust, Efficiency, Williamson, Price Effects, Wealth Transfers, Clayton Act, Efficiency Defense

JEL Classification: K19, K21, K29, K39, L40, L41, L49