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Module 4:
Economics of Mergers (12 a.h.1)

Prof. Leslie MARX
             

Outline of Course Contents 

The aim of this module is to introduce the theoretical ideas that underpin the economic analysis of merger appraisal and to explain how they are applied in practice.
 

Structure

1. Introduction 

(a) competition policy (consumer and social surplus)
(b) mergers: horizontal versus vertical
(c) market definition
(d) theories of harm: unilateral and coordinated effects
(e) remedies

2. Preliminaries 

(a) price formation process
(b) monopoly pricing

3. Oligopoly markets 

(a) merger simulation and merger review metrics for unilateral effects
(b) countervailing factors: entry, efficiencies
(c) coordinated effects and the role of mavericks

4. Bidding markets
(a) merger simulation and merger review metrics for unilateral effects
(b) countervailing factors: entry, efficiencies, buyer power, countervailing power
(c) coordinated effects and the role of mavericks
(d) tension between unilateral and coordinated effects

5. Vertical mergers 

(a) increased efficiency for internal transactions
(b) decreased efficiency for external transactions


Reading 

“Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations between Undertakings” (2004), https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52004XC0205%2802%29

U.S. “Horizontal Merger Guidelines” (2010), https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf

U.S. “Draft Vertical Merger Guidelines” (2020), https://www.ftc.gov/system/files/documents/public_statements/1561715/p810034verticalmergerguidelinesdraft.pdf

Epstein, R.J. and D.L. Rubinfeld (2002), “Merger Simulation: A Simplified Approach with New Applications,” Antitrust Law Journal 69(3), 883–919, https://www.jstor.org/stable/40843541

Gilbert, R.J. and S.C. Sunshine (1995), “Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets,” Antitrust Law Journal 63(2), 569–601, https://www.jstor.org/stable/40843292

Loertscher, S. and L.M. Marx (2019), “Merger Review for Markets with Buyer Power,” Journal of Political Economy 127(9), 2967–3017, https://doi.org/10.1086/702173

Loertscher, S. and L.M. Marx (2020), “Coordinated Effects,” https://faculty.fuqua.duke.edu/~marx/bio/papers/coordeffects.pdf

Loertscher, S. and L.M. Marx (2019), “Countervailing Power,” https://faculty.fuqua.duke.edu/~marx/bio/papers/CounterVailingPower.pdf.

Murgatroyd, R. and A. Swan (2012), “Developments in Unilateral Effects Analysis: Price Pressure Tests,” CCRED Working Paper No. 2/2012, https://doi.org/10.2139/ssrn.2728279.

Whinston, M. (2007) “Antitrust Policy towards Horizontal Mergers” in Armstrong and Porter (eds.)
Handbook of Industrial Organization 3 Ch. 36, North Holland, http://faculty.wcas.northwestern.edu/~mdw054/papers/hio.pdf. (Note that the 1992 Guidelines referenced in this paper have been superceded by the 2010 Guidelines listed above) 
           
Module 1 Module 2 Module 3 Module 4 Module 5 Module 6 Module 7 Module 8
           
1 a.h. = academic hour (50 minutes).

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