Price-Concentration Studies: There You Go Again
40 Pages Posted: 18 Feb 2004
Date Written: February 14, 2004
Abstract
Price-concentration studies are important because they are widely seen as supporting the standard prediction that high seller concentration tends to harm consumers and because both antitrust agencies use them in assessing horizontal mergers. But price-concentration studies are severely flawed. In industries in which sellers compete on quality and amenities, a positive price-concentration relation could result, not from coordinated effects, but from competitive superiority. Since such non-price competition is ubiquitous and is usually intense, this poses a significant problem of interpretation. Further, non-price competition cannot be controlled for statistically, as is frequently assumed. Even if sellers compete exclusively on price, price-concentration studies are still severely flawed. Differences in market size could induce a positive price-concentration relationship, but as with competitive superiority, a price-concentration relationship resulting from this cause does not imply consumers are being harmed. Market size differences may well account for the observations that the FTC attributed to non-competitive behavior in Staples. The paper concludes with some suggestions for improving price-concentration studies and for further research.
Keywords: Price-concentration, horizontal mergers
JEL Classification: L40
Suggested Citation: Suggested Citation
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