The Structural Presumption and the Safe Harbor in Merger Review: False Positives, or Unwarranted Concerns?

Abstract

The structural presumption against mergers in highly concentrated markets has had a controversial history. The debate has centered on the error rates – and especially, the rate of false positives – from reliance on a simple structural standard for presuming a merger to be anticompetitive. This article introduces the first systematic evidence into that debate. It also uses that evidence to examine the empirical validity of the so-called “safe harbor” – the range of concentration where mergers are presumed unlikely to harm competition. The evidence is based on a substantial compilation of carefully studied mergers whose competitive outcomes are matched to data on concentration, the change in concentration due to the merger, and the number of remaining significant competitors after each merger. Statistical tests confirm that the current threshold in the Horizontal Merger Guidelines correctly identifies anticompetitive mergers with a high degree of accuracy, as indeed would somewhat tighter standards. Corollary findings include indications that a count of remaining significant competitors produces a slightly higher rate of correct predictions, and that the concentration-based safe harbor is at best rough guidance since there are any number of anticompetitive mergers in that zone. Data on recent merger enforcement practice are contrasted with these findings.

JEL Classification: L40