The Deterrence Effects of U.S. Merger Policy Instruments

Abstract

We estimate the deterrence effects of U.S. merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the U.S. DOJ and FTC allow industry based measures over the 1986-1999 period of the conditional probabilities for eliciting an investigation, challenge, and prohibition: deterrence variables akin to the traditional conditional probabilities from the economics of crime literature. We find the challenge-rate, and to a lesser degree the investigation-rate, to lead to fewer horizontal mergers in subsequent years; however, the prohibition-rate does not indicate significant deterrence effects. These results suggest that investigations and challenges respectively yield moderate and strong deterrence effects; yet, prohibitions do not involve significantly more deterrence than do remedies.

Keywords: deterrence, antitrust, merger policy, methodology

JEL Classification: L40, L49, K21