Unilateral Effects Analysis in Differentiated Product Markets: Guidelines, Policy, and Change

Abstract

The Merger Guidelines highlight unilateral effects analysis as the most prominent theory of concern in differentiated markets. This study evaluates the Federal Trade Commission’s historical record to determine what considerations drive the review process, if these considerations depend on the type of differentiated market under review and if policy has changed much over the 20 years since the 1992 Merger Guidelines were issued. Our results highlight the importance of both direct and indirect proxies for diversion, as well as entry and effects evidence. Moreover, an ability to focus the analysis on price-based competition leads to predictions of significantly higher estimates for the probability of a unilateral effects finding, especially when repositioning is difficult. Little change in policy is identified over the 20-year period of the study, although it is possible that the discussion of effects evidence in the 2010 Merger Guidelines has increased the relevance of this consideration.

Keywords: mergers, competition policy, unilateral effects, federal trade commission, decomposition

JEL Classification: K21, L40