Natural Oligopoly Responses, Repeated Games, and Coordinated Effects in Merger Analysis: A Perspective and Research Agenda

37 Pages Posted: 18 Feb 2021

See all articles by Jonathan B. Baker

Jonathan B. Baker

American University - Washington College of Law

Joseph Farrell

University of California, Berkeley - Department of Economics

Date Written: January 19, 2021

Abstract

When the 1968 Merger Guidelines were drafted, both the economics and antitrust literatures addressed how competition could be softened when oligopolists anticipated the natural and predictable responses of their rivals to their competitive moves, such as price cuts or output expansion. But when economists developed new models of oligopoly behavior, and of coordinated effects in particular, the older ideas were dropped—until the 2010 Guidelines, when the older ideas were reincorporated along with the newer ones. Our article points out limitations of the workhorse repeated game model of oligopoly conduct for analyzing coordinated effects of mergers, and suggests ways to make that model more realistic. We also identify important research questions that are raised when attempting to account for oligopolists’ natural and predictable responses in evaluating the consequences of mergers, and suggest studying Stackelberg reactions as a way to make progress in doing so.

Suggested Citation

Baker, Jonathan B. and Farrell, Joseph, Natural Oligopoly Responses, Repeated Games, and Coordinated Effects in Merger Analysis: A Perspective and Research Agenda (January 19, 2021). Available at SSRN: https://ssrn.com/abstract=3769364 or http://dx.doi.org/10.2139/ssrn.3769364

Jonathan B. Baker (Contact Author)

American University - Washington College of Law ( email )

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Joseph Farrell

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
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510-642-9854 (Phone)
510-642-6615 (Fax)

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