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28 Antitrust Bull. 571 (1983)

handle is hein.journals/antibull28 and id is 583 raw text is: The Antitrust Bulletin/Fall 1983

A review of the economic basis for
broad-based horizontal-merger policy
BY PAUL A. PAUTLER*
I. Introduction
The eminently believable notion that the concentration of pro-
ductive capacity in fewer and fewer hands in a given market will
often lead to higher prices and lower output has been standard
fare for students of economics for decades. This concern about
market concentration is evidenced by the large amount of re-
search devoted to the theoretical study of competition among few
competitors and empirical studies of the effects of market con-
centration on welfare, prices, and profitability. During the last
decade, however, the basis for this fear of concentration has been
attacked by those who argue that increased concentration will
most often lead to (or is the result of) efficient production, lower
costs, and lower prices.
In this article, we attempt to chronicle the debate over the
effects of concentration on market performance. In the process
we compare the state of our current economic knowledge with
that which existed in 1968. That year was chosen because at that
point the Justice Department's Antitrust Division felt secure
enough in its knowledge of the effects of market structure on
market performance to issue market-share/concentration-ratio
guidelines for horizontal mergers.' What we find in our review is
*   The author is an economist with the Federal Trade Commission.
The Justice Department offered both horizontal- and vertical-
merger guidelines in 1968. We will be concerned only with horizontal
problems.
@1984 by Federal Legal Publications, Inc.

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