4.6 Article

Concentration Thresholds for Horizontal Mergers

Journal

AMERICAN ECONOMIC REVIEW
Volume 112, Issue 6, Pages 1915-1948

Publisher

AMER ECONOMIC ASSOC
DOI: 10.1257/aer.20201038

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Funding

  1. German Research Foundation (DFG) [CRC TR224]

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This study finds both theoretical and empirical basis for focusing solely on the change in concentration, and ignoring its level, in screening mergers for whether their unilateral price effects will harm consumers. The current threshold levels are likely too lax, unless there are significant efficiency gains or factors like entry and product repositioning to constrain market power postmerger.
Concentration-based thresholds for horizontal mergers, such as those in the US Horizontal Merger Guidelines, play a central role in merger analysis but their basis remains unclear. We show that there is both a theoretical and an empirical basis for focusing solely on the change in concentration, and ignoring its level, in screening mergers for whether their unilateral price effects will harm consumers. We also argue that current threshold levels likely are too lax, unless one expects efficiency gains of 5 percent or greater, or other factors such as entry and product repositioning to significantly constrain the exercise of market power postmerger. (JEL D43, G34, G38, K21, L13, L41)

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