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The Empirical Evidence on the Pass-Through of Firm-Specific Cost Changes to Prices: What Implications for Merger Reviews?

20 Pages Posted: 27 May 2008  

Simon Evenett

University of St. Gallen - Economics Department - SIAW

Date Written: February 1, 2008

Abstract

Mergers and acquisitions represent two important means by which resources are reallocated within capitalist economies. Such combinations can result in lower costs of supply, which are often referred to as efficiencies. However, mergers and acquisitions can also result in the greater exercise of market power by the parties concerned. The latter typically results in higher prices while (marginal or incremental) cost reductions may have the opposite effect. Central to the assessment of the overall likely effect of a merger or acquisition on prices is the extent to which any potential cost reductions of the parties are passed on to customers, the so-called cost pass-through rate. The emphasis in many jurisdictions' merger regulations on combination-specific cost efficiencies and on consumer welfare in evaluating proposed trans-actions puts at a premium our understanding of the degree and determinants of firm-specific cost pass-through to prices. The purpose of this chapter is to describe the available evidence on such pass-through and to consider the implications of this evidence for the conduct of merger reviews.

Keywords: mergers and acquisitions, cost pass-through, competition policy

JEL Classification: K21

Suggested Citation

Evenett, Simon, The Empirical Evidence on the Pass-Through of Firm-Specific Cost Changes to Prices: What Implications for Merger Reviews? (February 1, 2008). U. of St. Gallen Law & Economics Working Paper No. 2008-09. Available at SSRN: https://ssrn.com/abstract=1137884 or http://dx.doi.org/10.2139/ssrn.1137884

Simon Evenett (Contact Author)

University of St. Gallen - Economics Department - SIAW ( email )

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CH-9000 St. Gallen
Switzerland
41 71 224 2315 (Phone)
41 71 224 2298 (Fax)

HOME PAGE: http://www.evenett.com

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