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77 Calif. L. Rev. 777 (1989)
Price Effects of Horizontal Mergers

handle is hein.journals/calr77 and id is 791 raw text is: Price Effects of Horizontal Mergers Alan A. Fisher,t Frederick I. Johnson,t and Robert H. Landettt When should the government challenge a merger that might increase market power but also generate efficiency gains? The dominant belief has been that the government and courts should evaluate these mergers solely in terms of economic efficiency. Congress, however, wanted the courts to stop any merger significantly likely to raise prices. Substantially likely effi- ciency gains should therefore affect the legality of mergers to the extent that they are likely to prevent price increases. This standard is more strict than the economic efficiency criterion, because the latter would permit mergers substantially likely to lead to higher prices, if sufficient efficiency gains were substantially likely. The authors analyze the competing price effects of market power increases and efficiency gains in the most relevant context: significant mergers in concentrated markets-oligopoly. They derive four general oli- gopoly models and evaluate them over all reasonable ranges for their underlying parameters. This methodology avoids biases due to overly restrictive assumptions. By using the Merger Guideline standards and data from mergers that the Federal Trade Commission closely examined during 1982-86, the authors analyze empirically relevant tradeoffs between market power increases and efficiency gains. They find that decreases in marginal costs of 0 to 9% could be necessary to prevent price gains from mergers typical t Bureau of Economics, Federal Trade Commission, Washington, D.C. Ph.D. 1973, University of California, Berkeley. ft Senior Economist, General Motors Corporation. Formerly Assistant Director for Antitrust, Bureau of Economics, Federal Trade Commission, Washington, D.C. Ph.D. 1980, University of Minnesota. ttt Assistant Professor, University of Baltimore School of Law. J.D. 1978, Harvard University; M.P.P. 1978, John F. Kennedy School of Government, Harvard University. The opinions in this article are solely ours and do not necessarily express the views of our colleagues, the Bureau of Economics, the Commission, any individual Commissioner, or General Motors Corporation. This article incorporates and extends the analysis in Mergers, Market Power, and Property Rights: When Will Efficiencies Prevent Price Increases?, Federal Trade Commission Working Paper No. 130 (Sept. 1985). We thank Jonathan B. Baker, William Blumenthal, Alan J. Daskin, Kenneth G. Elzinga, William T. Fryer III, V. Rock Grundman, Barry C. Harris, Thomas M. Jorde, Thomas G. Krattenmaker, John E. Kwoka, Jr., David T. Levy, Victoria F. Nourse, Daniel L. Rubinfeld, Steven C. Salop, and Oliver E. Williamson for useful comments on earlier drafts.

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