Difference in Differences Analysis in Antitrust: What Does it Really Measure?

10 Pages Posted: 7 May 2007

See all articles by John Simpson

John Simpson

Federal Trade Commission

David Schmidt

Federal Trade Commission

Date Written: May 4, 2007

Abstract

Merger retrospectives often use a difference in differences (DID) approach to measure the price effects of mergers. As used in these studies, this approach implicitly assumes that the price in the control market fully controls for supply and demand shocks in the treatment market if the two markets experience the same demand and supply shocks. In this paper, we first show that this is only true if the parameters that determine how supply and demand shocks affect price are the same in the two markets. We then show that in many plausible circumstances the DID approach could either overestimate or underestimate the price effects of a merger.

Keywords: merger retrospectives

JEL Classification: L1,L4,K21

Suggested Citation

Simpson, John and Schmidt, David, Difference in Differences Analysis in Antitrust: What Does it Really Measure? (May 4, 2007). Available at SSRN: https://ssrn.com/abstract=984540 or http://dx.doi.org/10.2139/ssrn.984540

John Simpson (Contact Author)

Federal Trade Commission ( email )

601 Pennsylvania Avenue, NW
Washington, DC 20580
United States

David Schmidt

Federal Trade Commission ( email )

600 Pennsylvania Avenue, NW
Washington, DC 20580
United States
202-326-2781 (Phone)
202-326-3443 (Fax)

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