Book contents
- Frontmatter
- Contents
- Preface
- Introduction
- I MARKET STRUCTURE
- II INDUSTRIAL PRICING AND PRICING SCHEMES
- III COMPETITION POLICY
- IV MERGERS AND MERGER CONTROL
- 17 Unprofitable exogenous mergers
- 18 Profitable horizontal mergers and welfare
- 19 Using the Herfindahl–Hirschman index
- 20 Cournot and merger control
- 21 Vertical mergers
- 22 Enforcement of the US merger guidelines
- 23 Enforcement of the European merger regulation
- Index
18 - Profitable horizontal mergers and welfare
Horizontal mergers: an equilibrium analysis
Published online by Cambridge University Press: 21 September 2009
- Frontmatter
- Contents
- Preface
- Introduction
- I MARKET STRUCTURE
- II INDUSTRIAL PRICING AND PRICING SCHEMES
- III COMPETITION POLICY
- IV MERGERS AND MERGER CONTROL
- 17 Unprofitable exogenous mergers
- 18 Profitable horizontal mergers and welfare
- 19 Using the Herfindahl–Hirschman index
- 20 Cournot and merger control
- 21 Vertical mergers
- 22 Enforcement of the US merger guidelines
- 23 Enforcement of the European merger regulation
- Index
Summary
Mergers between large firms in the same industry have long been a public policy concern. In the United States, section 7 of the Clayton Act (as amended by the Celler–Kefauver Act) prohibits mergers that ‘substantially decrease … competition or tend … to create a monopoly’. Under the Hart–Scott–Rodino Act, large firms must report any proposed substantial merger to the Department of Justice and the Federal Trade Commission, which evaluate the merger's likely effect on competition and can choose to permit or to oppose it.
In evaluating proposed mergers, federal antitrust officials generally apply rules summarized in the Department of Justice's Merger Guidelines (1984). An important part of merger analysis under these guidelines involves estimating the effect of a proposed merger on market concentration. In particular, the analyst is instructed to pay careful attention to the initial level of concentration in the industry and the predicted change in concentration due to the merger. Roughly speaking, the guidelines permit mergers that will not increase concentration by very much or that will leave it low even after the merger. This reflects a view that anticompetitive harm is an increasing function of concentration, which is measured using the Herfindahl–Hirschman index, H, defined as the sum of the squares of the firms' market shares.
- Type
- Chapter
- Information
- Applied Industrial Economics , pp. 340 - 367Publisher: Cambridge University PressPrint publication year: 1998