Economic Models and the Merger Guidelines: A Case Study

Merger analysis is a field in which economic theory is systematically applied, day-in, day-out. Economics structures the definition of the relevant market, and then economics drives the evaluation of the likely competitive effect of the merger. Exactly which models are used by Federal Trade Commission staff would be of great interest to the stake-holder community, as would any details on how the models are applied. This paper provides those details with an in-depth study of the FTC merger review process focused on single market horizontal mergers evaluated between 1993 and 2003. Five different market models are identified with a homogeneous goods analysis (two choices) useful in about one-third of the cases and a differentiated goods analysis (three choices) relevant for the others. Unilateral effects analysis was used in slightly more than half of the cases and coordinated interaction theories in just less than half. Evidence contained in hot documents, validated customer concerns and event analyses appears to play an important role in confirming the implications of Guidelines-based theoretical models of a merger’s competitive effect.