Author(s)
Sonia Jaffe and
E. Glen Weyl
Source
American Economic Journal: Microeconomics, Vol. 5, No. 4, pp. 188-218, 2013
Summary
This technical paper presents a new method for predicting the effects of a merger between two firms.
Policy Relevance
Antitrust regulators may use the method presented in this paper to analyze a wider variety of mergers than previous methods permitted.
Main Points
- When two competing firms merge, antitrust authorities may be interested in estimating the effects of the merger on the market in which the firms compete.
- A merger may be expected to change the prices of goods, the quantities of goods sold, profits of merging firms and other firms, and the welfare of consumers who depend on the goods sold in the market.
- How these variables change with a merger—whether they increase or decrease, and how much—depends on many factors, some of which cannot be directly observed or measured.
- Existing methods for estimating the change in price and welfare variables get around this problem by using pre-merger information about how firms pass changes in production costs on to consumers.
- The new method presented in this paper uses the same pre-merger information as existing methods but does not depend on as many assumptions about the market, and should be more widely-applicable.
- The contributions of this paper are highly technical and quantitative.