DP14979 Concentration Screens for Horizontal Mergers

Author(s): Volker Nocke, Michael Whinston
Publication Date: July 2020
Keyword(s): Herfindahl index, Horizontal Merger, Market concentration, market power, oligopoly
JEL(s): D43, L13, L40
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14979

Concentration-based screens for horizontal mergers, such as those employed in the US DOJ and FTC Horizontal Merger Guidelines, play a central role in merger analysis. However, the basis for these screens, in both form and level, remains unclear. We show that there is both a theoretical and an empirical basis for focusing solely on the change in the Herfindahl index, and ignoring its level, in screening mergers for whether their unilateral effects will harm consumers. We also argue, again both theoretically and empirically, that the levels at which the presumptions currently are set may be too lax, especially with regards to safe harbors.