Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index

Schinkel, Maarten Pieter; Goppelsroeder, Marie; Tuinstra, Jan

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Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index

Journal of Industrial Economics, Vol. LVI, No. 4, pp. 778-808, 2008

Amsterdam Center for Law & Economics Working Paper No. 2006-10

35 Pages Posted: 17 Jul 2006 Last revised: 30 Mar 2011

See all articles by Maarten Pieter Schinkel

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Jan Tuinstra

University of Amsterdam - Department of Quantitative Economics (KE); Tinbergen Institute

Abstract

In both US and EU merger control, merger-specific efficiencies are recognized as a possible defense for horizontal mergers that raise competition concerns. We introduce the Werden-Froeb-index (WFI) to assist in evaluating these efficiencies. The index measures the weighted average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the (full or partial) merger is consummated. The WFI is well-defined, objective and robust, and has relatively low information requirements. We propose to use the index as a natural complement to concentration measures (such as the Hirschmann-Herfindahl-index) in the assessment of horizontal mergers.

Keywords: Merger control, efficiency defense, index, HHI

JEL Classification: L100, L400, C430

Suggested Citation: Suggested Citation

Schinkel, Maarten Pieter and Goppelsroeder, Marie and Tuinstra, Jan, Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index. Journal of Industrial Economics, Vol. LVI, No. 4, pp. 778-808, 2008, Amsterdam Center for Law & Economics Working Paper No. 2006-10, Available at SSRN: https://ssrn.com/abstract=916556