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Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition

35 Pages Posted: 10 Dec 2008 Last revised: 22 Feb 2010

Joseph Farrell

University of California, Berkeley - Department of Economics

Carl Shapiro

University of California, Berkeley - Haas School of Business

Date Written: February 15, 2010

Abstract

We describe a simple initial indicator of whether a proposed merger between rivals in a differentiated product industry is likely to raise prices through unilateral effects. Our diagnostic calibrates upward pricing pressure (UPP) resulting from the merger, based on the price/cost margins of the merging firms’ products and the extent of direct substitution between them. As a screen for likely unilateral effects, this approach is practical, more transparent, and better grounded in economics than are concentration-based methods.

Keywords: mergers, antitrust, unilateral effects, market definition, relevant market

JEL Classification: K21, L13, L4, L40

Suggested Citation

Farrell, Joseph and Shapiro, Carl, Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition (February 15, 2010). Available at SSRN: https://ssrn.com/abstract=1313782 or http://dx.doi.org/10.2139/ssrn.1313782

Joseph Farrell

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-9854 (Phone)
510-642-6615 (Fax)

Carl Shapiro (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-5905 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu

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