Calibrated Economic Models Add Focus, Accuracy, and Persuasiveness to Merger Analysis

22 Pages Posted: 16 Dec 2002  

Gregory J. Werden

U.S. Department of Justice - Antitrust Division

Luke Froeb

Vanderbilt University - Strategy and Business Economics

Abstract

In the competitive analysis of mergers, "calibrated economic models" are standard, formal models, particularly monopoly and oligopoly models, in which the values of the key parameters are set on the basis of observable features of the industry under review. Calibrated economic models offer three advantages in merger analysis: (1) They bring key issues into sharper focus by making assumptions explicit and identifying which factors are critical and precisely how they matter. (2) They add accuracy by quantifying issues of importance and relying on calculations rather than intuition. (3) They enhance persuasiveness in a judicial proceeding by making the analysis more concrete and better grounded in both the facts of case and economic theory. The paper illustrates these advantages in market delineation and in the prediction of price and other effects of mergers through the use of simulation.

JEL Classification: K0

Suggested Citation

Werden, Gregory J. and Froeb, Luke, Calibrated Economic Models Add Focus, Accuracy, and Persuasiveness to Merger Analysis. THE PROS AND CONS OF MERGER CONTROL: 10th ANNIVERSARY OF THE SWEDISH COMPETITION AUTHORITY, Swedish Competition Authority, ed., Swedish Competition Authority, Stockholm, 2002. Available at SSRN: https://ssrn.com/abstract=354121 or http://dx.doi.org/10.2139/ssrn.354121

Gregory J. Werden

U.S. Department of Justice - Antitrust Division ( email )

450 Fifth Street, NW
9th Floor
Washington, DC 20530
United States
202-307-6366 (Phone)

Luke M. Froeb (Contact Author)

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

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