How Much Does the Choice between the Theories of Collusion and Unilateral Effects Matter in Merger Analysis?

40 Pages Posted: 1 Jul 2017 Last revised: 18 Oct 2019

See all articles by Malcolm B. Coate

Malcolm B. Coate

U.S. Federal Trade Commission (FTC)

Shawn W. Ulrick

U.S. Federal Trade Commission (FTC)

Date Written: October 17, 2019

Abstract

The staff at an antitrust agency can focus on either coordinated interaction (collusion) or unilateral effects theories when investigating a proposed merger. This paper statistically models whether the choice of economic theory materially affects the outcomes of the merger review process. If the challenge rates are similar under both theories when holding the relevant structural and performance variables constant, then theory choice matters little, and the structural and performance variables are what are most important to the FTC law enforcement decision. If the formal challenge rates are different under the two theories of harm, the theory choice matters. We apply decomposition and matching analyses to evaluate whether the theory choice affects the likelihood that a merger is challenged. We find that the specific theory used in the investigation has an effect in homogeneous goods markets; pursuing a unilateral theory instead of a collusion theory reduces the average challenge rate by 12.7 to 17.4 percentage points, and switching from a unilateral theory to a collusion theory would raise the challenge rate by 6.1 to 11 percentage points. The theory choice decision does not seem to matter for differentiated products, as the policy differences are smaller and not significant.

Keywords: Merger Policy, Federal Trade Commission, Antitrust, Unilateral Effects, Collusion, Decompostion

JEL Classification: K21, L40, L88

Suggested Citation

Coate, Malcolm B. and Ulrick, Shawn W., How Much Does the Choice between the Theories of Collusion and Unilateral Effects Matter in Merger Analysis? (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=2995679 or http://dx.doi.org/10.2139/ssrn.2995679

Malcolm B. Coate (Contact Author)

U.S. Federal Trade Commission (FTC) ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States

Shawn W. Ulrick

U.S. Federal Trade Commission (FTC) ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

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