On the Misuse of Regressions of Price on the HHI in Merger Review

10 Pages Posted: 13 Jan 2022

See all articles by Nathan Miller

Nathan Miller

Georgetown University - McDonough School of Business

Steven Berry

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

Jonathan B. Baker

American University - Washington College of Law

Timothy Bresnahan

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

Richard Gilbert

University of California, Berkeley

George Alan Hay

Cornell University - Law School

Ginger Zhe Jin

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Bruce H. Kobayashi

George Mason University - Antonin Scalia Law School

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

James A. Levinsohn

University of Michigan; National Bureau of Economic Research (NBER)

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group

John W. Mayo

Georgetown University - McDonough School of Business

Aviv Nevo

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Ariel Pakes

Harvard University; National Bureau of Economic Research (NBER)

Nancy L. Rose

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Daniel L. Rubinfeld

University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School

Steven C. Salop

Georgetown University Law Center

Marius Schwartz

Georgetown University - Department of Economics

Katja Seim

Yale School of Management

Carl Shapiro

University of California, Berkeley - Haas School of Business

Howard A. Shelanski

Georgetown University Law Center

David S. Sibley

University of Texas at Austin - Department of Economics

Andrew Sweeting

University of Maryland - Department of Economics

Date Written: November 22, 2021

Abstract

Economists widely agree that, absent sufficient efficiencies or other offsetting factors, mergers that increase concentration substantially are likely to be anticompetitive. Further, holding everything else equal, the magnitude of anticompetitive effects tends to be larger, the larger is the increase in concentration caused by the merger. As market concentration is more easily measured than the post-merger equilibrium (which is unobserved ex ante), the use of concentration screens in the antitrust review of mergers is sensible and economically well-founded.

It might seem natural to determine whether prices are positively related to measures of concentration, such as the Herfindahl-Hirschman Index (HHI), comparing across different geographic markets or time periods. This might be implemented by using a simple regression of price on the HHI. However, for reasons that we describe, regressions of price on the HHI should not be interpreted as establishing causation. That is, they do not inform how a change in concentration from a merger would affect prices. Courts and other policy-makers should not rely on regressions of price on the HHI for the purposes of antitrust merger review.

Keywords: mergers, antitrust, regressions of price on HHI

JEL Classification: K21, L41

Suggested Citation

Miller, Nathan and Berry, Steven T. and Scott Morton, Fiona M. and Baker, Jonathan B. and Bresnahan, Timothy F. and Bresnahan, Timothy F. and Gaynor, Martin and Gilbert, Richard and Hay, George Alan and Jin, Ginger Zhe and Kobayashi, Bruce H. and Lafontaine, Francine and Levinsohn, James A. and Marx, Leslie M. and Mayo, John W. and Nevo, Aviv and Pakes, Ariel and Rose, Nancy L. and Rubinfeld, Daniel L. and Salop, Steven C. and Schwartz, Marius and Seim, Katja and Shapiro, Carl and Shelanski, Howard A. and Sibley, David S. and Sweeting, Andrew, On the Misuse of Regressions of Price on the HHI in Merger Review (November 22, 2021). Georgetown McDonough School of Business Research Paper No. 3974267, Available at SSRN: https://ssrn.com/abstract=3974267 or http://dx.doi.org/10.2139/ssrn.3974267

Nathan Miller (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
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Steven T. Berry

Yale University - Department of Economics ( email )

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New Haven, CT 06520-8264
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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Fiona M. Scott Morton

Yale School of Management ( email )

New Haven, CT 06520
United States

National Bureau of Economic Research (NBER)

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Jonathan B. Baker

American University - Washington College of Law ( email )

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Timothy F. Bresnahan

Stanford University - Department of Economics ( email )

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Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Martin Gaynor

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
and Management
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National Bureau of Economic Research (NBER)

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Leverhulme Centre for Market and Public Organisation

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Richard Gilbert

University of California, Berkeley ( email )

Department of Economics
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George Alan Hay

Cornell University - Law School ( email )

Myron Taylor Hall
Cornell University
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Ginger Zhe Jin

University of Maryland - Department of Economics ( email )

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United States
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301-405-3542 (Fax)

National Bureau of Economic Research (NBER)

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Bruce H. Kobayashi

George Mason University - Antonin Scalia Law School ( email )

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HOME PAGE: http://mason.gmu.edu/~bkobayas

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business ( email )

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Ann Arbor, MI MI 48109-1234
United States
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734-936-0279 (Fax)

University of Michigan at Ann Arbor - Department of Economics ( email )

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James A. Levinsohn

University of Michigan ( email )

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National Bureau of Economic Research (NBER)

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Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

John W. Mayo

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-6972 (Phone)
(202) 687-7310 (Fax)

Aviv Nevo

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ariel Pakes

Harvard University ( email )

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nancy L. Rose

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Room E52-318A
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United States

National Bureau of Economic Research (NBER)

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Daniel L. Rubinfeld

University of California at Berkeley - School of Law ( email )

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Berkeley, CA 94720-7200
United States
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(510) 642-3767 (Fax)

HOME PAGE: http://www.law.berkeley.edu/faculty/rubinfeldd

National Bureau of Economic Research (NBER)

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NYU Law School ( email )

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United States
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Steven C. Salop

Georgetown University Law Center ( email )

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202-662-9095 (Phone)
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Marius Schwartz

Georgetown University - Department of Economics ( email )

Washington, DC 20057
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Katja Seim

Yale School of Management ( email )

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P.O. Box 208200
New Haven, CT 06520-8200
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Carl Shapiro

University of California, Berkeley - Haas School of Business ( email )

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Berkeley, CA 94720
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HOME PAGE: http://faculty.haas.berkeley.edu

Howard A. Shelanski

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
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David S. Sibley

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Andrew Sweeting

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

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