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Concentration-Based Inference for Evaluating Horizontal Mergers

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  • Paul S. Koh
Abstract
Antitrust authorities routinely rely on concentration measures to evaluate the potential negative impacts of mergers. Using a first-order approximation argument with logit and CES demand, I show that the welfare effect of a merger on consumer surplus is proportional to the change in the Herfindahl-Hirschman index, where the proportionality coefficient depends on price responsiveness parameter, market size, and the distribution of merging firms' shares. This paper elucidates how HHI measures inform the market power effects of mergers.

Suggested Citation

  • Paul S. Koh, 2024. "Concentration-Based Inference for Evaluating Horizontal Mergers," Papers 2407.12924, arXiv.org, revised Jul 2024.
    • Handle: RePEc:arx:papers:2407.12924
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    References listed on IDEAS

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    1. Miller, Nathan H. & Remer, Marc & Ryan, Conor & Sheu, Gloria, 2017. "Upward pricing pressure as a predictor of merger price effects," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 216-247.
    2. Froeb, Luke M. & Werden, Gregory J., 1998. "A robust test for consumer welfare enhancing mergers among sellers of a homogeneous product," Economics Letters, Elsevier, vol. 58(3), pages 367-369, March.
    3. Tommaso Valletti & Hans Zenger, 2021. "Mergers with Differentiated Products: Where Do We Stand?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 179-212, February.
    4. Nathan H. Miller & Marc Remer & Conor Ryan & Gloria Sheu, 2016. "Pass-Through and the Prediction of Merger Price Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 64(4), pages 683-709, December.
    5. Volker Nocke & Nicolas Schutz, 2018. "Multiproduct‐Firm Oligopoly: An Aggregative Games Approach," Econometrica, Econometric Society, vol. 86(2), pages 523-557, March.
    6. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
    7. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    8. Orley C. Ashenfelter & Daniel S. Hosken & Matthew C. Weinberg, 2015. "Efficiencies brewed: pricing and consolidation in the US beer industry," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 328-361, June.
    9. Volker Nocke & Michael D. Whinston, 2022. "Concentration Thresholds for Horizontal Mergers," American Economic Review, American Economic Association, vol. 112(6), pages 1915-1948, June.
    10. Nathan H. Miller & Matthew Osborne & Gloria Sheu, 2017. "Pass-through in a concentrated industry: empirical evidence and regulatory implications," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 69-93, March.
    11. Sonia Jaffe & E. Glen Weyl, 2013. "The First-Order Approach to Merger Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 188-218, November.
    12. Yossi Spiegel, 2021. "The Herfindahl‐Hirschman Index and the Distribution of Social Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 561-594, September.
    Full references (including those not matched with items on IDEAS)

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