52 Pages Posted: 12 Dec 2010 Last revised: 12 May 2011
Date Written: May 10, 2011
This paper explores the Federal Trade Commission’s unilateral effects merger policy using a sample of 184 investigations undertaken between 1993 and mid-2010. A review of the files suggests that roughly half of the sample is evaluated with a dominant firm/monopoly model, while the rest of the cases require a more complex unilateral effects analysis. Deterministic modeling based on the number of significant rivals suggests that the four-to-three transaction in a market with impediments to entry represents the marginal merger challenge. Case specific facts explain deviations from this rule and suggest that critical diversion ratios fall into the 25-30 percent range. Share based indices (post-merger market share, change in the Herfindahl, or a share-based Gross Upward Pressure on Price variable) can be used, but require the definition of a market and do not predict outcomes as well as the significant rivals’ model. An Appendix details the various reasons why the staff declined to apply a unilateral effects analysis to conclude a merger was likely to substantially lessen competition in a broader sample of differentiated products mergers.
Keywords: Unilateral Effects, Mergers, Federal Trade Commission, Competitive Analysis
JEL Classification: k21, l40
Suggested Citation: Suggested Citation
Coate, Malcolm B., Counting Rivals or Measuring Share: Modeling Unilateral Effects for Merger Analysis (May 10, 2011). Available at SSRN: https://ssrn.com/abstract=1722846 or http://dx.doi.org/10.2139/ssrn.1722846
By Carl Shapiro