The Use of Natural Experiments in Merger Analysis

Abstract

Natural experiments may serve as a test of an economic theory that purports to evaluate the competitive effects of a proposed transaction and therefore play an important role in merger analysis. Using aggregate reviews of Federal Trade Commission merger studies, it is possible to identify a number of quantitative and qualitative experiments supportive of unilateral effects, coordinated interaction, or continued competition theories. The court decisions in Staples, Oracle, and Whole Foods play a role in structuring the review in unilateral cases, while Judge Posner’s commentary on performance analysis is relevant in coordinated interaction cases. Other experiments show either no structure-performance relationship in a market or undermine a key characteristic of Guidelines analysis to imply that the merger in question is not likely to be anticompetitive. A final section evaluates the linkage between the experimental evidence, supplemented at times with validated customer complaint and hot document findings, and the merger challenge decision. While the results show the bulk of the merger challenges were substantiated by some type of evidence, a number of monopoly and duopoly matters are challenged on pure structural grounds.

Keywords: Mergers, Competition Policy, Natural Experiments, Federal Trade Commission

JEL Classification: K21, L40