1 / 20

Georgetown University

Georgetown University. The Law and Economics of Horizontal Mergers. Incentives to Merge. Merger to attain monopoly Merger for Improved efficiency Takeovers. The Williamson Tradeoff. $/Q. P 2. B. AC 1. P 1. A. AC 2. D. Q 2. Q 1. Q. The Economic effects of Mergers.

beryl
Télécharger la présentation

Georgetown University

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Georgetown University

  2. The Law and Economics of Horizontal Mergers

  3. Incentives to Merge • Merger to attain monopoly • Merger for Improved efficiency • Takeovers

  4. The Williamson Tradeoff $/Q P2 B AC1 P1 A AC2 D Q2 Q1 Q

  5. The Economic effects of Mergers • Theoretical Considerations • Dominant Firm-Competitive Fringe • Cournot • Bertrand • Empirical Analyses • Event analyses (Eckbo; Prager) • Merger Specific Analyses (Northwest-Republic)

  6. Implications of DF-CF Model for Mergers • If a dominant firm mergers with a competitive fringe firm, market power and price will rise (ceteris paribus) • The magnitude of market power increases depend on standard DF-CF Market power factors (concentration; fringe SS elasticity, market DD elasticity) • Without barriers to entry, no MP increase • Efficiency gains may offset market power effects

  7. Cournot • Each firm produces an output to maximize profit, given the output of all other firms. Nash Equilibrium, when, given the output of others, no firm wishes to change output Bertrand Each firm sets a price to maximiye ist profit, given the price of other firms. Nash Equilibrium when, given the price of all other firms, no firm has an incentive to change price.

  8. Northwest/Republic Merger Markup Relative to industry average prices (%) 40 NW or Rep NW + REP 30 20 NW or Republic + Other 10 NW +Rep + Other 1987 1985 1986

  9. Merger Policy in Practice • Legal foundation of merger Policy • Clayton Act, Section 7 • Hart Scott Rodino • Antitrust enforcement • Judicial Treatment of mergers

  10. The Clayton Act, Section 7 That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part…of another corporation also engaged in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition or to tend to create a monopoly. Language matters…. * in any line of commerce in any section of the country *the effect…may be to lessen competition or tend to create

  11. Hart Scott Rodino • Requires pre-notification of intent to merger be filed with both the Federal Trade Commission and the Department of Justice, Antitrust Division • The relevant antitrust agency has 30 days to green light or issue a “second request” • Second requests typical involve large detailed filing • Once complete DOJ/FTC has 20 days

  12. 1997 Merger Guidelines • The unifying theme of the Guidelines is that mergers should not be permitted to create or enhance market power or to facilitate its exercise.

  13. The DOJ/FTC Merger Guidelines • Market Definition • Market concentration • Entry Conditions • Other Competitive Indicators • Merger-induced efficiencies

  14. Market Definition • Begin with a small geographic and product definition. • Could a hypothetical monopolist raise prices by a small but significant and non-transitory amount? • Yes • No • (dd-side product, dd-side geographic, ss-side product, ss-side geographic substitutability)

  15. Market Concentration • Herfindahl-Hirschmann Index • HHI = Σ S2i • 0<HHI<10,000 • (Post merger) HHI < 1000 - unconcentrated • 1000 <HHI< 1800 -- moderately concentrated • if ΔHHI <100 • if ΔHHI >100 • 1800 <HHI -- highly concentrated • if ΔHHI <50 • if ΔHHI >50

  16. Entry conditions • Uncommitted Entry • Within one year and not involving significant sunk costs • Committed entry • Entry requiring significant sunk costs • Timely (w/i two years) • Likely (profitable at pre-merger prices), and • Sufficient (enough to discipline prices)

  17. Other Competitive Indicators • Would merger facilitate collusion? • Facilitate monitoring of cheating • Promote ability to punish cheaters • Factors: e.g., product homogeneity; are transactions prices “visible”; are demand and cost changing rapidly; maverick firm

  18. Merger-Induced Efficiencies • Consistent with Williamson Trade-off • Only considered if merger is only means of achieving efficiencies • Consider the case of efficiencies to gain economies of scale...

  19. FTC v. Coca-Cola • Coca-Cola - Dr. Pepper, Pepsi - 7-Up announce merger plans • FTC issues preliminary injunction • Coca-Cola-Dr. Pepper challenge in court • Critical issue: Market definition • FTC - carbonated soft drinks (pricing decisions of executives) • Coca-Cola - all potable liquids sold in North America (Lake Erie defense)

  20. FTC v. Coca-Cola (cont.) • Barriers to entry • sunk costs of entry (brand name awareness) • requirements for distribution network • limited buttons on “Coke Machines” • Anticipated anticompetitive effects • Third party bottler problem • Court’s finding “the acquisition totally lacks any apparent redeeming feature.”

More Related