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January 2008





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Evaluating the Accuracy of Horizontal Merger Enforcement. There is no easy way to evaluate horizontal merger enforcement in the courts and at the DOJ and the FTC. As explained below, our approach is to rely on several different categories of evidence. The most compelling way to evaluate the accuracy of merger enforcement policy would be through merger retro-spectives—detailed studies evaluating the actual effects of consummated mergers on market prices, product variety, or innovation. The most revealing mergers to study in depth are those that went forward despite presenting serious antitrust concerns. Armed with a large number of such studies , one could, in principle, identify the conditions under which horizontal mergers do, and do not, harm consumers. One could also evaluate the accuracy of the models and techniques used to evaluate proposed mergers, and use the results to develop more accurate techniques for merger evaluation. Unfortunately, while considerable work has been done on merger retrospectives, especially for airline, banking , and hospital mergers, the current state of knowledge about the actual effects of mergers on consumers remains fragmentary. Lacking comprehensive information based on merger retrospectives, the accuracy of horizontal merger enforcement can still be evaluated by looking at key enforcement and non-enforcement decisions and evaluating the economic reasoning used in those decisions. Litigated mergers typically generate a substantial public record, allowing outsiders as well as the court to review the agency's decision to challenge. We are keenly aware that in many cases where one of the agencies declines to challenge a proposed merger, a great deal of the information available to that agency is confidential and thus unavailable to outsiders. But this information asymmetry cannot and should not be used to shield agency enforcement decisions from any meaningful external review. In cases where no enforcement action was taken, evaluating the agency's economic reasoning is greatly facilitated if detailed information about the industry is publicly available merger enforcement was simple, but also inflexible and overly stringent. Courts and enforcers relied on the " structural presumption " of harm to competition from increasing market concentration. This formula based enforcement almost entirely on market definition and market shares. The rules were clear, but they discouraged pro-competitive mergers. Now, some forty years later, horizontal merger enforcement has been transformed, largely for the better. The structural presumption remains in force, but it is dramatically weaker.

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