Working Paper: NBER ID: w28189
Authors: Louis Kaplow
Abstract: Economic analysis of competition regulation is most developed in the domain of horizontal mergers, and modern agency guidelines reflect a substantial consensus on the appropriate template for merger assessment. Nevertheless, official protocols are understood to rest on a problematic market definition exercise, to use HHIs and ΔHHIs in ways that conflict with standard models, and more broadly to diverge with how economic analysis of proposed mergers should be and often is conducted. These gaps, unfortunately, are more consequential than is generally appreciated. Moreover, additional unrecognized errors and omissions are at least as important: analysis of efficiencies, which are thought to justify a permissive approach, fails to draw on the most relevant fields of economics; entry is often a misanalyzed afterthought; official information collection and decision protocols violate basic tenets of decision analysis; and single-sector, partial equilibrium analysis is employed despite the presence of substantial distortions (many due to imperfect competition) in many sectors of the economy. This article elaborates these deficiencies, offers preliminary analysis of how they can best be addressed, and identifies priorities for further research.
Keywords: No keywords provided
JEL Codes: D43; K21; L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Traditional market definition exercises (HMT) (G10) | Erroneous predictions of anticompetitive effects (L49) |
| Presumptively cleared mergers (G34) | Price increases significantly greater than those associated with challenged mergers (L12) |
| Neglected analysis of efficiencies (D61) | Inadequate justification for mergers (G34) |
| Standard analysis fails to incorporate relevant economic theories (D79) | Ineffective assessment of efficiencies (D61) |
| Common focus on post-merger entry (G34) | Overlooking complexities of ex ante entry dynamics (D43) |
| Flawed analyses of mergers (D43) | Understated effects of mergers (G34) |
| Flawed merger assessments (L41) | Misallocation of regulatory scrutiny (G18) |