Did Robert Bork Understate the Competitive Impact of ... · determining which horizontal mergers...

S67

[ Journal of Law and Economics, vol. 57 (August 2014)]© 2014 by The University of Chicago. All rights reserved. 0022-2186/2014/5703-0028$10.00

Did Robert Bork Understate the Competitive Impact of Mergers? Evidence from

Consummated Mergers

Orley Ashenfelter Princeton UniversityDaniel Hosken U.S. Federal Trade Commission

Matthew Weinberg Drexel University

Abstract

In The Antitrust Paradox, Robert Bork viewed most mergers as either com-petitively neutral or efficiency enhancing. In his view, only mergers creating a dominant firm or monopoly were likely to harm consumers. Bork was especially skeptical of oligopoly concerns resulting from mergers. In this paper, we provide a critique of Bork’s views on merger policy from The Antitrust Paradox. Many of Bork’s recommendations have been implemented over time and have improved merger analysis. Bork’s proposed horizontal merger policy, however, was too permissive. In particular, the empirical record shows that mergers in oligopolis-tic markets can raise consumer prices.

1. Introduction

Merger enforcement by the U.S. Department of Justice (DOJ) and the U.S. Fed-eral Trade Commission (FTC) was extremely aggressive in the 1950s, 1960s, and early 1970s. In The Antitrust Paradox (Bork 1978), Robert Bork argued that U.S. courts and antitrust enforcers of this era were concerned about the consolidation of economic decision making into the hands of a relatively small number of cor-porations and the corresponding decline in the economic importance of small independent businesses (Bork 1978, pp. 202–5). As a result, U.S. merger policy was focused on maintaining low levels of market concentration rather than on determining how specific mergers would change the competitive environment in a market. While courts sometimes acknowledged that mergers could generate ef-ficiencies, efficiencies were not seen as being sufficient to overturn the competi-

The views expressed in this article are those of the authors and do not necessarily represent those of the Federal Trade Commission. We would like to thank Pauline Ippolito, Paul Pautler, the editors, and a referee for helpful comments.

This content downloaded from 140.180.247.052 on May 31, 2019 09:30:10 AMAll use subject to University of Chicago Press Terms and Conditions (http://www.journals.uchicago.edu/t-and-c).

S68 The Journal of LAW & ECONOMICS

tive concerns caused by increased market concentration.1 Moreover, during this time period, the government was remarkably successful in challenging mergers. In United States v. Von’s Grocery Co. (384 U.S. 270 [1966]), the Supreme Court affirmed the FTC’s decision to challenge the merger of two Los Angeles grocery retailers with a combined market share of only 7.5 percent. In summarizing the (then) Supreme Court’s view of horizontal merger policy, Justice Potter Stewart wrote in his dissent to Von’s Grocery that “[t]he sole consistency that I can find is that in litigation under Section 7, the Government always wins” (384 U.S. 301).

By the late 1980s, the burden of proof required of the U.S. antitrust agencies to challenge horizontal mergers had dramatically increased.2 Establishing that a merger would increase market concentration in a well-defined market became the starting place for horizontal merger analysis rather than the end point. To successfully challenge a merger, the government was required to provide the Court with an economic theory that described how the transaction at issue would harm competition and extensive evidence supporting its theory. In addition, the government was now forced to show that market forces, such as expansion by rivals or the entry of new firms, would not be sufficient to maintain competition following a potentially anticompetitive merger. Finally, beginning with the 1984 revision of the Merger Guidelines (U.S. Department of Justice 1984), the U.S. an-titrust agencies formally acknowledged that mergers can generate important eco-nomic efficiencies. While the burden was on the merging parties to show that reductions in marginal costs resulting from the merger would offset the merged firms’ incentive to increase price, the government was now required to rebut an efficiency defense.

This increase in the evidentiary burden placed on the government has substan-tially limited its ability to challenge horizontal mergers. A series of major govern-ment losses of merger cases has led some scholars to conclude that the burden placed on the government is now too severe (Baker and Shapiro 2009). The gov-ernment no longer always wins.

Bork’s The Antitrust Paradox played an important role in moving horizon-tal merger policy from its strict emphasis on market concentration to its cur-rent application as seen in both the modern case law and the Horizontal Merger Guidelines. In The Antitrust Paradox, Bork challenges the logic underlying many prominent merger decisions and more generally, the (then) commonly held be-liefs underlying merger policy. He felt that most mergers were either competi-tively neutral or undertaken to generate economic efficiencies. Because mergers were frequently socially beneficial, Bork believed that merger policy should be much more permissive than it was in the 1960s and 1970s. While he conceded that some mergers could generate market power, Bork believed those problem-

1 For example, the Supreme Court majority opinion in Federal Trade Commission v. Procter & Gamble Co. (386 U.S. 568 [1967]) stated that “[p]ossible economics cannot be used as a defense to illegality. Congress was aware that some mergers which lessen competition may also result in eco-nomics, but it struck the balance in favor of protecting competition” (386 U.S. 580).

2 Kovacic (2003) provides an excellent discussion of the dramatic changes in merger policy and case law that took place between the 1960s and 1980s.


Impact of Mergers S69

atic cases were limited to the creation of either a monopoly or a dominant firm. Bork was especially skeptical that mergers could create or exacerbate competitive harm in oligopolistic markets.

While we agree with some of Bork’s critique of merger enforcement circa 1970, we believe that he went too far in dismissing likely competitive harm resulting from mergers that fell short of creating a monopoly or dominant firm. Subse-quent empirical studies examining the price effects of consummated mergers have shown that, contrary to what Bork believed, mergers in oligopolistic mar-kets can increase prices and harm consumers.

The goal of this essay is to evaluate how well the claims Bork made regard-ing mergers in The Antitrust Paradox are supported by the current empirical re-cord. To offer a fair criticism of Bork, however, it is essential to acknowledge how much antitrust analysis generally, and horizontal merger policy in particular, has changed since the publication of The Antitrust Paradox. Thus, we begin by briefly describing the U.S. merger policy to which Bork was responding by highlighting two key Supreme Court decisions from the 1960s: United States v. Von’s Grocery and Federal Trade Commission v. Procter & Gamble. We then discuss Bork’s cri-tique of merger policy and his suggestions for improvements. Next, we describe the dramatic changes in horizontal merger policy that followed the publication of The Antitrust Paradox, because these changes resulted in a very different com-position of mergers both allowed and challenged by U.S. antitrust authorities. Fi-nally, we turn to our review of ex post merger studies to evaluate Bork’s predic-tions regarding how mergers in oligopoly markets have affected competition and the importance of merger efficiencies.

2. Merger Policy prior to The Antitrust Paradox

Antitrust authorities in the United States were very concerned with the growth of large corporations and believed that the diminished role of smaller firms in industries would harm competition. As a result of this concern, antitrust author-ities aggressively challenged both mergers that increased market concentration and expansion by large firms into adjacent markets. The Von’s Grocery case ex-emplifies both the aggressiveness of horizontal merger policy and its focus on market concentration during this era. In 1960, Von’s Grocery, a supermarket chain operating in the greater Los Angeles area, purchased a rival chain, Shop-ping Bag Food Stores. At the time of the merger, Von’s Grocery and Shopping Bag Food Stores had a combined market share of 7.5 percent of grocery sales in Los Angeles, and the 10 largest firms had a collective market share of roughly 50 percent.3 The FTC claimed that the merger would harm competition by increas-ing market concentration in a market undergoing rapid consolidation and sued to block the transaction. The district court denied the FTC’s request to block the merger, and Von’s acquired Shopping Bag Food Stores (Von’s Grocery Co., 384

3 By modern terms, this market does not appear very concentrated. Ellickson (2007) reported that in 1998 the top six supermarket retailers in the average U.S. market captured about 70 percent of industry sales.



U.S. 270 [1966]). The case was ultimately appealed to the U.S. Supreme Court, which reversed the district court’s decision and forced Von’s to divest the stores it acquired in 1966.

Surprisingly, the majority opinion does not cite evidence showing that the merger of Von’s and Shopping Bag created or enhanced market power, despite hearing the case 6 years after the merger was consummated.4 Instead, in conclud-ing its decision, the Court stated, “It is enough for us that Congress feared that a market marked at the same time by both a continuous decline in the number of small businesses and a large number of mergers would slowly but inevitably gravitate from a market of many small competitors to one dominated by one or a few giants, and competition would thereby be destroyed” (384 U.S. 278). The emphasis on market concentration and concerns of growing concentration in determining which horizontal mergers are likely to cause competitive problems were formalized in the first edition of the Merger Guidelines published by the DOJ in 1968 (U.S. Department of Justice 1968). In its “General Enforcement Pol-icy,” the DOJ stated that “the primary role of Section 7 enforcement is to preserve and promote market structures conducive to competition” (U.S. Department of Justice 1968, sec. 2). The guidelines implemented this policy by providing very explicit market-share thresholds that would likely generate enforcement action by the agency. For example, in a highly concentrated market (defined as one in which the top four firms amount to more than 75 percent of sales), the DOJ stated it would “ordinarily challenge” the merger of two firms each with a 4 per-cent market share and that in markets with a “trend toward concentration,” the DOJ will ordinarily challenge any acquisition by “any firm whose market share amounts to 2% or more” (U.S. Department of Justice 1968, secs. 5 and 7).

Regulators and courts were also concerned that mergers could provide firms with a cost advantage relative to rivals. Perhaps the most famous example of this concern can be seen in the Supreme Court’s 1967 decision in Federal Trade Commission v. Procter & Gamble Co. (386 U.S. 568 [1967]) (often referred to as the Clorox case). In the 1950s Procter & Gamble (P&G) was a very successful manufacturer and marketer of home-cleaning products including laundry deter-gents. However, it did not manufacturer or market a bleach product. In 1957, P&G chose to enter the liquid bleach business by purchasing the Clorox Chem-ical Company, the owner of the most popular bleach brand in the United States, Clorox. The FTC sued to break up the merger, arguing that P&G’s acquisition “might substantially lessen competition or tend to create a monopoly in the pro-duction and sale of household liquid bleaches.” This merger was not challenged because of a traditional vertical or horizontal concern. Instead, the FTC described this merger as a product-extension merger. It was concerned that because P&G was such a powerful producer of products complementary to bleach, the merger would cause the bleach market to become less competitive. The FTC won an

4 Justice Stewart noted in his dissenting opinion that “[t]here is simply no evidence in the record, and the Court makes no attempt to demonstrate that the increment in market share obtained by the combined stores can be equated with an increase in the market power of the combined firm” (384 U.S. 297).



administrative trial and ordered P&G to divest Clorox. The court of appeals re-versed the FTC’s decision, but on further appeal the Supreme Court ruled in fa-vor of the FTC and forced P&G to divest Clorox.

The Court cited two primary reasons for challenging the merger. First, P&G might have entered the bleach market at some point in the future, and as a very successful producer of consumer products, its threat of entry may (somehow) have limited Clorox’s market power.5 Second, the merger would have allowed P&G to more effectively promote Clorox (through reductions in the cost of ad-vertising), and this decline in promotion costs would have harmed competition by causing entry to be less likely.6 In essence, the Court ruled that merger efficien-cies are illegal if they cause the merged firm’s costs to be so low that rivals cannot profitably enter.

3. Bork’s View of Effective Merger Policy

As he describes in the forward to The Antitrust Paradox, Bork completed his first draft in 1969, shortly after the Supreme Court’s Clorox and Von’s Grocery decisions, and the book reads as a vigorous response to these and other similarly aggressive antitrust actions. Bork frames his analysis of mergers using William-son’s (1968) classic paper that outlines the potential welfare trade-off resulting from horizontal mergers. Using a very simple model, Williamson described how mergers could simultaneously result in cost reductions and reductions in output. Williamson suggested that in determining which mergers to challenge, regula-tors should explicitly trade off the positive productive effects of mergers against the deadweight loss resulting from mergers that increase market power. As we discuss in more detail, Bork did not think that Williamson’s suggested trade-off could be effectively used in practice. However, Bork felt that Williamson’s model provided a very important insight for merger policy: mergers cannot be harmful unless they result in a reduction in output. If the government cannot produce a credible theory of how a merger harms competition, then it should allow the merger to proceed.7 Therefore, the primary focus of merger analysis should focus on determining whether there is a reasonable probability that the specific merger before the agencies will harm competition. While Bork’s policy recommenda-tion seems uncontroversial today, at the time it represented a significant break from a consensus view as seen in the 1968 Merger Guidelines and Von’s Grocery;

5 The Court cites the Federal Trade Commission’s statement that “prior to the merger, the Com-mission found, Procter was the most likely prospective entrant, and absent the merger, would have remained on the periphery, restraining Clorox from exercising its market power” (386 U.S. 575).

6 The Court wrote, “The acquisition may also have the tendency of raising barriers to new entry. The major competitive weapon in the successful marketing of bleach is advertising. Clorox was lim-ited in this area by its relatively small budget and its inability to obtain substantial discounts. . . . Procter would be able to use its volume discounts to advantage in advertising Clorox. Thus, a new entrant would be much more reluctant to face the giant Procter than it would have been to face the smaller Clorox” (386 U.S. 579).

7 “If a practice does not raise a question of output restriction, however, we must assume that its purpose and therefore its effect are either the creation of efficiency or some neutral goal. In that case the practice should be held lawful” (Bork 1978, p. 122).



that is, showing that a merger either increased concentration or was taking place in a market that was experiencing consolidation was sufficient to show that the merger was anticompetitive.

While Bork conceded that some mergers could create market power and re-duce consumer welfare, he felt that such mergers were limited to those that cre-ated either a monopoly or a dominant firm. He was quite skeptical that mergers would create or enhance competitive problems resulting from oligopoly. For ex-ample, Bork writes, “oligopolistic behavior, to the extent that it exists at all (and I am not persuaded that such behavior exists outside of economics textbooks) rarely results in any significant ability to restrict output” (Bork 1978, p. 221). The difficulty facing regulators was in determining whether to challenge a merger when there was evidence suggesting that a merger would both increase market power and result in important efficiencies. Bork did not think that regulators would be capable of the balancing exercise suggested by Williamson because pre-cisely measuring either deadweight loss or merger efficiencies is extremely diffi-cult in the best of circumstances, and often impossible. A formal balancing exer-cise would require economists to know or estimate “the demand curve over all possibly relevant ranges of output and the marginal cost curve over those same ranges” (Bork 1978, p. 125). The subsequent “trial would then proceed to the measurement of efficiency and restriction of output under an imaginary set of circumstances: what would the net contribution to consumer welfare be if the two firms were merged into one?” (Bork 1978, p. 125). Bork also expressed the (in hindsight, prescient) fear that if courts and regulators attempted to engage in this balancing act, they would focus on only those efficiencies that can be measured, even though those efficiencies may not be the most important.8 Bork argued that the most important merger efficiencies, such as the transfer of assets to more ca-pable management, would not be considered valid under a balancing test.9

Bork did not provide a precise description of how to balance the efficiency ben-efits and competitive harms of proposed mergers. He argued that if the regulator believed that the chances that the merger was competitively harmful or beneficial were roughly the same, then the government should allow the merger to pro-ceed.10 For the remaining cases, Bork suggested that appropriately constructed

8 “Economists, like other people, will measure what is susceptible to measurement and will tend to forget what is not, though what is forgotten may be far more important than what is measured” (Bork 1978, p. 127).

9 “The most important thing about the Ford Motor Co. in its early years was the genius of Henry Ford, just as the most important efficiency of General Motors Corp. in later years was the organi-zational genius of Alfred Sloan. The acquisition of one of those companies of a rival would have ex-tended to a new group of resources a management that was enormously superior, even if there were no cost cuts to be expected but only the doing of better things at higher costs” (Bork 1978, p. 129).

10 Bork provides two economic justifications for his conclusion. First, he argues that because blocking mergers is costly, it does not make sense to invest resources where the expected value of harm is zero. Second, if a merger proves to be anticompetitive, market forces will eventually right the situation (Bork 1978, p. 133). The counterargument to Bork’s recommendation is that by suc-cessfully challenging these marginal mergers, the government can deter firms from filing mergers that might lead to small price increases. Over time, this deterrence effect could lower the agency’s



market-share thresholds (much more lenient than those in the 1968 Guidelines) would minimize the harm from anticompetitive mergers. He stated,

My guess is . . . that mergers of up to 60 or 70 percent of the market should be permitted. . . . Partly as a tactical concession to the current oligopoly phobia and partly in recogni-tion of Section 7’s intended function of tightening the Sherman Act rule, I am willing to weaken that conclusion. Competition in the sense of consumer welfare would be ade-quately protected and the mandate of Section 7 satisfactorily served if the statute were interpreted as making presumptively lawful all horizontal mergers up to market shares that would allow for other mergers of similar size in the industry and still leave three sig-nificant companies. (Bork 1978, pp. 221–22)

Thus, if Bork was correct, a merger policy that banned three-to-two mergers but allowed four-to-three mergers would be sufficient to maintain consumer welfare.

Bork also devoted significant discussion to the federal government’s challenges of conglomerate mergers such as P&G-Clorox. Bork felt that there was “no threat to competition in any conglomerate merger” because conglomerate mergers do not change the incentives of the merged firm such that it would choose to reduce output (Bork 1978, p. 246). Most of the concern about conglomerate mergers in the 1950s and 1960s was that the acquisition of a (typically) smaller firm in an unrelated market by a very large corporation would harm rivals in the unrelated markets. For example, in the Clorox case, P&G with its deep financial resources would provide Clorox with access to capital that could be invested in advertising and marketing to the detriment of Clorox’s rivals. Under conglomerate theories, merger efficiencies (access to capital at lower prices or even superior manage-ment) were often viewed as harmful to competition because they harmed rivals. Bork strongly argued that this policy was sensible only “if ‘competition’ is de-fined as a comfortable life for competitors” (Bork 1978, p. 254). The one con-glomerate theory that Bork felt had some legitimacy was a threat to potential en-try. However, he argued strongly that this theory was really a horizontal theory: the merger caused the acquiring firm to not enter the market and expand output. Bork felt that in very limited circumstances the government would be justified in blocking mergers under a theory of potential competition.11

Bork’s views of conglomerate mergers have become the consensus view in the United States. While U.S. antitrust agencies periodically challenge mergers under theories of potential competition,12 to our knowledge, there have not been any challenges of true conglomerate mergers in the United States in the modern era.13

enforcement costs. Clougherty and Seldeslachts (2013) provide evidence on deterrence effects in the United States.

11 “If there are three significant firms, an outside firm should be permitted to acquire any of them. If there is one large firm and a scattering of small firms, the outside firm should be allowed to ac-quire any of the smaller firms, or it should be allowed to acquire the largest firm unless it has, say, over 70% of the market” (Bork 1978, p. 260).

12 For example, in challenging a merger of innovator firms in the pharmaceutical industry where both firms were attempting to develop a product to serve the same market, the government often re-quires the merged firms to divest one firm’s research programs before approving the merger.

13 Conglomerate mergers do appear to be challenged outside the United States, most notably in



4. Changes in Antitrust Enforcement Post–Antitrust Paradox

Merger review has become both more systematized and fact intensive in the United States since the publication of The Antitrust Paradox. Both the federal antitrust agencies and the federal courts increasingly demand direct evidence demonstrating why a specific proposed acquisition will be anticompetitive (see, for example, Federal Trade Commission v. Staples, Inc., 970 F. Supp. 1066 [D.D.C. 1997]; United States v. Oracle Corporation, 331 F. Supp. 2d 1098 [N.D. Cal. 2004]). Except in extreme circumstances (mergers to monopoly or duopoly in undisputed markets), courts are unlikely to block mergers today solely because of an increase in market concentration. While there are undoubtedly many reasons for these changes in enforcement, we highlight three key changes that have, col-lectively, dramatically changed the composition of challenged U.S. mergers.

First, the market-share thresholds that generate competitive concern by anti-trust enforcers have increased substantially since Von’s Grocery. The 1968 Merger Guidelines stated that the DOJ would “ordinarily challenge” a horizontal merger of two firms each with a 5 percent market share in a “less highly concentrated market” (U.S. Department of Justice 1968, sec. 6). In contrast, the 2010 Horizon-tal Merger Guidelines state that only mergers taking place in highly concentrated markets (with a postmerger Hirschman-Herfindahl index [HHI] above 2,500) are “presumed to be likely to enhance market power” (U.S. Department of Jus-tice and Federal Trade Commission 2010, sec. 5.3). The change in the concentra-tion thresholds at which the federal antitrust agencies typically challenge mergers stated in the guidelines can also be seen in the agencies’ enforcement behavior. According to a recent report by the FTC, of all markets in which mergers were challenged between fiscal years 1996 and 2011, 85 percent were in markets with a postmerger HHI of more than 2,400 (Federal Trade Commission 2013, table 3.1). Thus, while not as permissive as Bork suggested, U.S. antitrust agencies now allow mergers in much more concentrated markets than at the time Bork wrote.

Second, and in sharp contrast to the Court’s opinion in the Clorox case, anti-trust enforcers now understand that merger efficiencies can offset a merged firm’s incentive to increase price. Mergers are now evaluated under the consumer- welfare standard: mergers that are expected to increase consumer prices (lower consumer welfare) are illegal.14 The 1984, 1992, 1997, and 2010 Merger Guide-lines each devote a separate section to the importance of merger efficiencies and describe the circumstances under which merger efficiencies will be considered as part of a merger investigation. Moreover, efficiency considerations can play an important role in the antitrust agencies’ enforcement decisions. According to the DOJ, the joint venture of Miller and Coors, which combined their U.S. op-

the European Union’s decision to block the GE-Honeywell merger in 2001. See Kolasky (2001) for a discussion.

14 This is a very different policy than the total-welfare standard endorsed by many economists, for example, Williamson (1968). Under a total-welfare standard, mergers that harm consumers by rais-ing prices are permissible so long as the gains in producer surplus are sufficient to offset the dead-weight loss caused by the price increase.



erations and dramatically increased market concentration, was allowed, in part, because “[t]he Division verified that the joint venture is likely to produce sub-stantial and credible savings that will significantly reduce the companies’ costs of producing and distributing beer. . . . The large amount of these savings and other evidence obtained by the Division supported the parties’ contention that the ven-ture should make a lower-cost, and therefore more effective, beer competitor” (U.S. Department of Justice 2008, p. 1). Thus, unlike in the days of Clorox, it is no longer the case that merger efficiencies can cause a horizontal merger to be ruled illegal. Current enforcement behavior reflects Bork’s view that the overwhelming majority of mergers are either competitively neutral and/or efficiency enhancing: over the last decade (2003–12), 96.8 percent of the mergers filed with the anti-trust agencies were allowed to proceed without undergoing a full merger investi-gation.15

Finally, the major institutional change in merger enforcement—the govern-ment’s legal right to review and challenge proposed mergers prospectively as granted by the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act)—has profoundly changed the process by which federal agencies review mergers. Prior to the passage of the HSR Act in 1976 (Pub. L. No. 94-435, 90 Stat. 1383), most companies were under no obligation to notify the government of their intent to merge or to delay a merger’s consummation to allow the government time to in-vestigate the proposed transaction.16 As a result, the government’s merger review frequently began after a merger was consummated, and in the event the merger was subsequently challenged, years would pass before the litigation was resolved. The social value of such litigation was dubious. Consumers experienced lost com-petition for up to a decade. Moreover, even following a successful trial, it was often difficult for the government and the combined firms to reconstruct a new entity to replicate the competition removed by the merger (Elzinga 1969).

The passage of the HSR Act eliminated these problems and greatly simplified merger review in the United States. The HSR Act established the government’s right to review mergers before they were consummated. Under the law, all firms participating in a merger of sufficient size must file an intent to merge with both the DOJ and the FTC that includes key documents describing the proposed transaction for all mergers of a sufficiently large size. The government then has 30 days to determine whether it requires more information to determine whether the merger is likely to harm competition. In that event, the government can issue a detailed request for documents from the merging parties (known as a second request). The firms cannot consummate their merger until the government has had 30 days to review all second-request material. After its review, the govern-ment can sue to block the merger in federal district court.

The effect of the HSR Act on merger analysis has been enormous. Because

15 That is, 96.8 percent of mergers were allowed to proceed without receiving a second request from the antitrust agencies (see the authors’ calculations using data in U.S. Department of Justice and Federal Trade Commission 2012, app. A).

16 See Baer (1997) for a discussion of pre–Hart-Scott-Rodino merger enforcement.



merger review has been routinized, the federal antitrust agencies have been able to systematize merger review in a way that was not previously possible. Over time, the agencies have developed standardized methodologies for conducting merger review that are described in a set of formal guidelines. The post–HSR Act Horizontal Merger Guidelines and their revisions (1982, 1984, 1992, 1997, 2010) describe the key questions that must be addressed by the government before chal-lenging a horizontal merger: entry, efficiencies, market definition, and the articu-lation of the government’s theory as to how the merger will harm consumers. As the agencies have modified their procedures over time, the guidelines are updated to provide transparency to the antitrust community. The current (2010) version of the Horizontal Merger Guidelines, for example, provides a detailed description of the types of evidence that the agencies consider in evaluating the competitive effects of a proposed merger.

In evaluating Bork’s proposals for merger review, it is important to note how much the process of merger review has changed and how much more is required of the government to successfully challenge a merger. In particular, the set of mergers challenged by the federal agencies has changed substantially in the years following the passage of the HSR Act. While the Von’s Grocery decision has not been explicitly overturned by the Supreme Court, we would be very surprised to see either U.S. antitrust agency challenge a merger in such an unconcentrated market today. Bork’s prediction that the typically challenged merger in an oligop-olistic industry would not have harmed consumers may have been correct given the composition of mergers taking place in the 1960s and 1970s. As we discuss, given current enforcement thresholds, the empirical evidence shows that mergers can increase market power in oligopolistic markets.

5. Can Horizontal Mergers in Oligopolistic Markets Be Anticompetitive?

Whether U.S. merger policy has been effectively employed to maintain con-sumer welfare is an open and controversial policy question.17 To evaluate Bork’s claims as to the likely competitive effects of mergers and, more generally, to pro-vide evidence on the overall effectiveness of horizontal merger policy, we con-ducted a survey of the literature that estimates the price effects of consummated horizontal mergers.18 In conducting this survey, we exclude papers that have fo-cused on the vertical aspects of mergers19 and transactions involving horizontal

17 In their analysis of U.S. competition policy, Crandall and Winston (2003, p. 20) conclude “that efforts by antitrust authorities to block particular mergers or affect a merger’s outcome by allowing it only if certain conditions are met under a consent decree have not been found to increase con-sumer welfare in any systematic way, and in some instances the intervention may even have reduced consumer welfare.”

18 Given both the recent growth in this literature and the variety of industries studied, it is quite likely that we have inadvertently missed some studies and apologize for any omission. See Pautler (2003), Weinberg (2008), Hunter, Leonard, and Olley (2008), and Kwoka (2013) for other surveys of this literature.

19 For example, we do not include Hastings and Gilbert (2005) and Hastings (2004), which focus on the vertical aspects of transactions in the petroleum industry.



agreements that fall short of complete integration.20 Our survey identified 49 dis-tinct studies examining mergers taking place in 21 industries published over the last 30 years.

The majority of papers reviewed in this essay have a similar study design.21 Un-der U.S. law, antitrust agencies are supposed to block mergers that reduce con-sumer welfare. If the agencies are operating effectively, on average, the marginal merger (the merger the agency is on the margin of challenging) should not result in a quality-adjusted price increase. Researchers test the agencies’ effectiveness by first identifying consummated mergers that were likely to be on the enforcement margin and then estimating how prices change following those mergers. If prices are found to increase systematically following marginal mergers, then enforce-ment has not been aggressive enough. Similarly, if prices, on average, fall follow-ing marginal mergers, then it follows that enforcement has been too aggressive. That is, the marginal merger allowed was one in which merger efficiencies more than offset the combined firm’s merger-induced incentive to increase price.

Most studies in this literature use a case study approach. The typical study examines one or a handful of mergers taking place in the same (or similar) in-dustries at roughly the same time and identifies merger price effects relative to some control product. A smaller number of studies attempt to measure the av-erage price effect of many mergers using a common methodology. Obviously, in this type of study it is impossible to provide much detail about the specific transactions being analyzed. Even in these broader studies, however, the authors frequently provide some evidence on the competitive significance of the merg-ers studied. For example, Prager and Hannan (1998) and Focarelli and Panetta (2003) both include estimates of merger price effects for those markets experienc-ing large changes in market concentration.

Unfortunately, the mergers studied do not constitute a representative sample of all potentially anticompetitive mergers. The set of mergers that can be stud-ied is severely limited by data availability. Most merger studies examine mergers in one of four industries that have experienced a large number of mergers and where data are available: airlines, banking, hospitals, and petroleum. The remain-der of the literature is quite diverse, reflecting circumstances where a researcher can identify both a potentially anticompetitive merger and data sufficient to esti-mate the price effects of the merger.

For each study we included in the survey, we identify the specific mergers stud-ied (when enumerated by the researcher), provide a terse description of the study, describe what (if any) evidence the author provides that the merger or mergers were on the enforcement margin, and state the study’s estimated merger price

20 Kwoka (2013) includes code-share agreements between airlines in his recent review of horizon-tal merger studies and concludes that most lower consumer prices. While code-share agreements do combine some aspects of competing airlines’ operations, these actions are quite different than merg-ers. Mergers likely offer significantly more opportunities for both anticompetitive effects (reductions in routes or coordination of pricing) and efficiencies (consolidation of operations).

21 See Carlton (2009) and Ashenfelter, Hosken, and Weinberg (2009) for a detailed discussion of the methodological issues involved in measuring the effectiveness of competition policy.



effect. To facilitate comparison across studies, we group the studies together for the airline (Table 1), banking (Table 2), hospital (Table 3), and petroleum (Table 4) studies. The summary of the studies of other industries is shown in Table 5.

As can be seen by a quick review of the tables, the estimated price effects of mergers vary dramatically across industries and even across studies estimating the price effects of a given merger. Four studies estimate the price effect of the 1986 merger of Northwest Airlines and Republic Airlines, for example, and find price effects of 9.5, 5.6, −1.8, and 7.2 percent (Table 1). Because of important dif-ferences in methodology, industry, data, and time period across studies, we do not calculate aggregate estimates of the typical price effect of a merger. Instead, we present the findings of each study separately and then draw general conclu-sions about the competitive impact of horizontal mergers.

The empirical evidence that mergers can cause economically significant in-creases in price is overwhelming. Of the 49 studies surveyed, 36 find evidence of merger-induced price increases.22,23 All of the airline merger studies find evi-dence of price increases, although the magnitude of the price increases appears to be more modest following recent mergers (2–6 percent) when compared with the mergers that took place in the 1980s. Similarly, most of the banking (six of seven), hospital (five of seven), and “other industry” (13 of 18) studies find evi-dence that mergers have resulted in price increases.

It is unclear whether mergers in the petroleum industry have increased con-sumer prices. Of the nine studies that estimate the price effects of horizontal mergers, four (three examining multiple mergers) find that mergers increased prices, while the remaining studies find either no meaningful change in pricing associated with mergers or ambiguous results. Institutional characteristics of pe-troleum markets, in particular the sensitivity of gasoline pricing to supply shocks, make the results of these studies especially sensitive to modeling assumptions. While the literature is not able to tell us whether mergers at observed levels of market concentration have increased gasoline prices, it does provide information to bound the potential price effects of mergers. Of those studies finding price in-creases, most report very small price effects, on the order of 1–2 cents per gallon (see Table 4). Only one study, U.S. Government Accountability Office (2004), re-ports larger price effects, varying from 1 to 7 cents per gallon. Thus, relative to the typical price variation associated with gasoline prices, even the maximum esti-mated price effects associated with petroleum mergers are quite modest.

22 We define a merger as increasing price if the merger caused as least some product prices to rise and no product prices to fall. For example, Ashenfelter, Hosken, and Weinberg (2013a) find that the acquisition of Maytag by Whirlpool caused the prices of some dryers and dishwashers to increase while not lowering the price of other appliances. From this evidence we conclude that the Maytag-Whirlpool merger caused prices to increase. Similarly, if a merger lowers some prices and leaves other prices unchanged, we conclude that the merger lowered prices. A merger that raises some prices while lowering others as in, for example, Thompson (2011), has ambiguous price effects.

23 Because many of the studies examine multiple mergers, it is possible for a study to find ev-idence of both merger price increases and merger price decreases. For example, Hosken, Olson, Smith (2012) find that of the 14 supermarket mergers they examine, five led to price increases, five led to price decreases, and four resulted in no meaningful change in consumer prices.



Overall, the results from the retrospective literature on mergers show that mergers in oligopolistic markets can result in economically meaningful price in-creases. While some of the airline merger studies discussed examine mergers that reduced the number of airlines serving city pairs to one or two firms, many stud-ies in this literature find that prices increased in markets with at least three ma-jor firms operating postmerger (see, for example, McCabe 2002; Ashenfelter and Hosken 2010; Tenn 2011; Dafny, Duggan, and Ramanarayanan 2012; Hosken, Olson, and Smith 2012). Ashenfelter, Hosken, and Weinberg (2013a), for ex-ample, estimate the price effects of the 2008 acquisition of the major appliance manufacturer Maytag by Whirlpool. As predicted by a conventional unilateral effects theory, the authors find that for those appliance categories experiencing a price increase, the prices of products sold by the combined Maytag-Whirlpool in-creased more than those sold by rivals. Contrary to Bork’s prediction, three ma-jor firms in an industry are not sufficient to maintain competition.

While the literature shows that mergers on the enforcement margin increase prices more often than not, it is not the case that every marginal merger increases consumer prices. Of the 49 studies we surveyed, 13 find evidence of price reduc-tions following a merger and 13 find evidence of no meaningful change in price following a merger. Ashenfelter and Hosken (2010), for example, estimate the price effects of mergers in five consumer goods industries: liquor, feminine hy-giene, passenger car motor oil, breakfast cereals, and pancake syrups. While they find that prices rose in four of five markets, the market experiencing the larg-est increase in market concentration (pancake syrups) did not experience a post-merger price increase. Similarly, Haas-Wilson and Garmon (2011) estimate the price effects of two hospital mergers taking place in the Chicago suburbs in 2000. The first merger involved two hospitals located in the same city that were rela-tively distant from other hospitals. This merger did not increase prices. The sec-ond merger combined hospitals both more distant from one another and facing competition from rivals located closer than those in the first merger and resulted in a price increase. We highlight these two examples to show the importance of institutional factors in merger analysis. The ability to generalize findings from one market to another is limited. Markets facing what may appear to be simi-lar levels of premerger competition (for example, levels of market concentration) can experience very different postmerger outcomes. Thus, while market concen-tration can provide a useful screen in determining which mergers to investigate, case-specific evidence (such as industry documents or explicit estimates of con-sumer substitution patterns) are critically important to decision makers in mak-ing correct enforcement decisions.

The retrospective literature on mergers focuses almost exclusively on measur-ing the short-run effect of mergers on prices. This limitation is largely driven by data availability. Obtaining access to the detailed price data required to credibly estimate the price effects of mergers is difficult, and most often only relatively short price series are available. However, even in those cases in which relatively long price series are readily available, for example, banking or petroleum mar-


S80

Tabl

e 1

Esti

mat

ed P

rice

Eff

ects

of C

onsu

mm

ated

Hor

izon

tal M

erge

rs in

the

Air

line

Indu

stry

Stud

ySt

udy

Des

crip

tion

Evid

ence

on

Enfo

rcem

ent M

argi

nM

erge

rPr

ice

Effec

ts R

epor

ted

Bore

nste

in (1

990)

Show

s how

airl

ine

fare

s on

rout

es

dire

ctly

affe

cted

by

mer

ger

com

pare

d w

ith o

ther

rout

es o

f sim

ilar l

engt

h

Nor

thw

est a

nd R

epub

lic h

ad

larg

e m

arke

t sha

res a

t M

inne

apol

is/St

. Pau

l, an

d TW

A a

nd O

zark

had

ver

y la

rge

shar

es in

St.

Loui

s

Nor

thw

est/R

epub

lic (1

986)

, TW

A/O

zark

(198

6)9.

5%, U

ncha

nged

Wer

den,

Josk

ow, a

nd

John

son

(199

1)U

ses a

fore

cast

ing

and

ba

ckca

stin

g m

etho

d to

es

timat

e m

erge

r pric

e eff

ects

“DO

J [D

epar

tmen

t of J

ustic

e]

conc

lude

d th

at th

e tw

o m

erge

rs w

ould

hav

e sig

nific

ant a

ntic

ompe

titiv

e eff

ects

on

man

y ci

ty p

airs

out

of

the

com

mon

hub

s” (p

. 342

)

Nor

thw

est/R

epub

lic (1

986)

, TW

A/O

zark

(198

6)5.

6%, 1

.1%

Kim

and

Sin

gal (

1993

)C

ompa

res m

ergi

ng fi

rms’

pric

es

with

thos

e on

rout

es n

ot

oper

ated

by

eith

er m

ergi

ng

firm

of s

imila

r len

gth

The

gove

rnm

ent d

id n

ot

chal

leng

e an

y ai

rline

m

erge

r dur

ing

this

perio

d (m

erge

rs w

ere

revi

ewed

by

the

Dep

artm

ent o

f Tr

ansp

orta

tion)

; thi

s allo

ws

them

to m

easu

re p

rice

effec

ts

of re

laxe

d an

titru

st p

olic

y

14 A

irlin

e m

erge

rsA

vera

ge m

erge

r effe

ct: 9

.55%

pric

e in

crea

se; n

orm

al fi

rms:

3.25

%

pric

e in

crea

se; fi

nanc

ially

di

stre

ssed

firm

: 26.

35%

Mor

rison

(199

6)Es

timat

es 6

8 se

para

te q

uart

erly

re

gres

sions

usin

g da

ta o

n 1,

000

larg

est U

.S. c

ity p

airs

; ex

amin

es h

ow m

arke

ts se

rved

by

mer

ging

par

ties e

volv

ed

over

tim

e; e

stim

ates

sepa

rate

lo

ng- a

nd sh

ort-

run

pric

e eff

ects

Des

crip

tion

of co

mpe

titiv

e co

ncer

ns re

gard

ing

Nor

thw

est/R

epub

lic a

nd

TWA

/Oza

rk; s

ugge

stio

n th

at a

t tim

e of

mer

ger t

hat

USA

ir/Pi

edm

ont w

as le

ss

cont

rove

rsia

l bec

ause

they

did

no

t hav

e ov

erla

ppin

g hu

bs

Nor

thw

est/R

epub

lic (1

986)

, TW

A/O

zark

(198

6), U

SAir/

Pied

mon

t

Shor

t run

: −1.

8%, l

ong

run:

2.5

%;

shor

t run

: 4.4

%, l

ong

run:

−1

5.3%

; sho

rt ru

n: 4

.4%

, lon

g ru

n: 2

2.8%


S81

Pete

rs (2

006)

Cal

cula

tes t

he re

lativ

e pr

ice

chan

ge a

ssoc

iate

d w

ith th

e m

erge

r on

over

lap

rout

es a

s th

e di

ffere

nce

betw

een

the

obse

rved

pric

e ch

ange

and

an

ave

rage

indu

stry

-wid

e pe

rcen

tage

pric

e ch

ange

co

nditi

onal

on

rout

e di

stan

ce

“[A

]ntit

rust

enf

orce

men

t in

the

indu

stry

was

rela

tivel

y la

x,

with

eve

ry p

ropo

sed

airli

ne

mer

ger r

ecei

ving

regu

lato

ry

appr

oval

” (p.

629

)

Nor

thw

est/R

epub

lic (1

986)

, TW

A/O

zark

(198

6), U

SAir/

Pied

mon

t; D

elta

/Wes

tern

, C

ontin

enta

l/Peo

ples

Exp

ress

7.2%

, 16.

0%, 2

0.3%

, 11.

8%, 2

9.4%

Kw

oka

and

Shum

ilkin

a (2

010)

Estim

ates

mer

ger p

rice

effec

t by

com

parin

g pr

ices

with

oth

er

firm

s on

rout

es n

ot se

rved

by

eith

er U

SAir

or P

iedm

ont

prio

r to

mer

ger

Disc

ussio

n of

the

lax

enfo

rcem

ent o

f airl

ine m

erge

rs

durin

g th

is tim

e pe

riod

and

the

two

prev

ious

stud

ies o

f th

e m

erge

r and

find

s pric

e in

crea

ses

USA

ir/Pi

edom

ont

Estim

ate

pric

es ro

se 1

0% in

ov

erla

p m

arke

ts a

nd 6

% w

here

on

e of

the

two

firm

s was

like

ly

a po

tent

ially

ent

rant

Hüs

chel

rath

and

Mül

ler

(201

3)Es

timat

es th

e av

erag

e pr

ice

effec

t ca

used

by

a ho

rizon

tal m

erge

r (u

sing

info

rmat

ion

from

six

mer

gers

)

No

spec

ific d

iscus

sion

of

mer

gers

bei

ng m

argi

nal;

som

e di

scus

sion

of re

gula

tory

re

view

Del

ta/N

orth

wes

t (20

09),

Fron

tier/

Mid

wes

t (20

09),

US

Airw

ays/

Am

eric

a W

est

(200

5), A

mer

ican

Airl

ines

/TW

A (2

001)

, Am

eric

an

Airl

ines

/Ren

o A

ir (1

999)

, A

irTra

n/V

aluj

et (1

998)

Estim

ate

shor

t-ru

n pr

ice

incr

ease

of

5.6

%, m

ediu

m-r

un p

rice

incr

ease

of 4

.7%

, and

long

-run

pr

ice

effec

t of 2

.7%

(but

not

st

atist

ical

ly d

iffer

ent f

rom

zero

)

Luo

(201

3)Es

timat

es p

rice

effec

ts o

f mer

ger

hold

ing

com

petit

ion

from

ot

her fi

rms c

onst

ant

DO

J rev

iew

ed m

erge

r but

al

low

ed it

bec

ause

of m

inim

al

over

lap

and

likel

y m

erge

r effi

cien

cies

Del

ta/N

orth

wes

t (20

09)

No

pric

e eff

ect o

n no

nsto

p ro

utes

; 2.3

% p

rice

incr

ease

on

conn

ectin

g ro

utes


S82

Tabl

e 2

Esti

mat

ed P

rice

Eff

ects

of C

onsu

mm

ated

Hor

izon

tal M

erge

rs in

the

Bank

ing

Indu

stry

Stud

ySt

udy

Des

crip

tion

Evid

ence

on

Enfo

rcem

ent

Mar

gin

Mer

ger

Pric

e Eff

ects

Rep

orte

dPr

ager

and

Han

nan

(199

8)Es

timat

es h

ow in

tere

st ra

tes

paid

to co

nsum

ers o

n sa

ving

ac

coun

ts ch

ange

d in

mar

kets

aff

ecte

d by

mer

gers

rela

tive

to

unaff

ecte

d m

arke

ts

Lim

ited

atte

ntio

n to

sign

ifica

nt

horiz

onta

l mer

gers

(tho

se

lead

ing

to re

lativ

ely

larg

e ch

ange

s in

mar

ket

conc

entr

atio

n)

Seve

n m

erge

rs ta

king

pla

ce

betw

een

1992

and

199

4N

OW

acc

ount

s: −1

7.7%

; mon

ey

mar

ket a

ccou

nts:

−9.5

%;

3-m

onth

cert

ifica

tes o

f de

posit

: −1.

7%

Sapi

enza

(200

2)Es

timat

es h

ow fi

rms’

loan

pric

es

chan

ged

follo

win

g a

mer

ger

as a

func

tion

of th

e re

lativ

e siz

e of

the

mer

ger

No

spec

ific d

iscus

sion

of

regu

lato

ry tr

eatm

ent o

f sp

ecifi

c mer

gers

138

Bank

mer

gers

taki

ng p

lace

in

Ital

y be

twee

n 19

89 a

nd

1995

Estim

ates

that

mer

gers

of fi

rms

of b

anks

with

smal

l mar

ket

shar

es lo

wer

ed lo

an ra

tes

(typi

cal r

educ

tion

41 b

asis

poin

ts),

whi

le m

erge

rs o

f fir

ms w

ith la

rge

mar

ket s

hare

s in

crea

sed

loan

rate

s (as

muc

h as

80

basis

poi

nts)

Foc

arel

li an

d Pa

netta

(200

3)Es

timat

es h

ow in

tere

st ra

tes

paid

to co

nsum

ers o

n sa

ving

ac

coun

ts ch

ange

d in

mar

kets

aff

ecte

d by

mer

gers

rela

tive

to

unaff

ecte

d m

arke

ts; e

stim

ates

sh

ort-

and

long

-run

pric

e eff

ect o

f mer

gers

Estim

atio

n of

the

pric

e eff

ects

of

all m

erge

rs in

dat

a; se

para

te

exam

inat

ion

of a

sam

ple

of

subs

tant

ial m

erge

rs (t

hose

ge

nera

ting

a la

rge

chan

ge in

m

arke

t con

cent

ratio

n)

Mer

gers

taki

ng p

lace

in It

aly

betw

een

1990

and

199

8A

ll m

erge

rs: s

hort

-run

effe

ct,

−13.

5%; l

ong-

run

effec

t, 12

.6%

; sub

stan

tial m

erge

rs:

shor

t-ru

n eff

ect,

−19%

; lon

g-ru

n eff

ect,

10.7

%

Cal

omiri

s and

Po

rnro

jnan

gkoo

l (20

05)

Estim

ates

how

loan

pric

es

chan

ged

in m

arke

ts a

ffect

ed

by th

e m

erge

r rel

ativ

e to

ot

her s

imila

r mar

kets

Bank

s wer

e re

quire

d to

div

est

bran

ch lo

catio

ns; d

espi

te

dive

stitu

res,

the

mer

ger

subs

tant

ially

incr

ease

d co

ncen

trat

ion

for m

ediu

m-

sized

firm

s nee

ding

ban

k lo

ans

Mer

ger o

f Fle

et a

nd B

ank,

Bo

ston

, 199

9M

ediu

m-s

ized

ban

ks lo

an ra

tes

incr

ease

d be

twee

n 80

and

100

ba

sis p

oint

s for

cust

omer

s in

New

Eng

land


S83

Gar

mai

se a

nd M

osko

witz

(2

006)

Estim

ates

how

loca

l loa

n pr

ices

ar

e aff

ecte

d by

mer

gers

as a

fu

nctio

n of

the

rela

tive

size

of

the

mer

ger

Exam

inat

ion

of la

rge

mer

gers

of

finan

cial

ly h

ealth

y co

mpe

ting

bank

s; no

spec

ific d

iscus

sion

of a

ntitr

ust r

evie

w o

f mer

gers

st

udie

d

80 L

arge

ban

k m

erge

rs ta

king

pl

ace

betw

een

1992

and

199

9Fi

nds t

hat t

he la

rges

t ban

k m

erge

rs co

uld

incr

ease

loan

pr

ices

by

abou

t 40.

1 ba

sis

poin

ts

Mon

torio

l-Gar

riga

(200

8)Es

timat

es h

ow fi

rms’

estim

ated

lo

an p

rice

chan

ges a

s a

resu

lt of

hor

izon

tal m

erge

rs

in m

arke

ts o

f diff

eren

t co

ncen

trat

ion

leve

ls

No

spec

ific d

iscus

sion

of

regu

lato

ry tr

eatm

ent o

f sp

ecifi

c mer

gers

Bank

mer

gers

in S

pain

Estim

ates

that

loan

pric

es

fall

follo

win

g al

l mer

gers

; ho

wev

er, p

rices

fall

less

in

mar

kets

exp

erie

ncin

g la

rger

m

erge

rs; e

stim

ated

pric

e de

crea

ses v

ary

from

0 to

20

basis

poi

nts

Alle

n, C

lark

, and

Hou

de

(201

3)Es

timat

es h

ow m

ortg

age

pric

es

chan

ged

in m

arke

ts a

ffect

ed

by th

e m

erge

r rel

ativ

e to

m

arke

ts w

here

the

mer

ging

fir

ms d

id n

ot co

mpe

te

Gen

eral

disc

ussio

n of

how

th

e C

anad

ian

mor

tgag

e m

arke

t has

bec

ome

rela

tivel

y co

ncen

trat

ed; s

peci

fic

tran

sact

ion

is no

t des

crib

ed

in d

etai

l

A b

anki

ng m

erge

r in

Can

ada

Estim

ates

that

mor

tgag

e ra

tes

incr

ease

bet

wee

n 5.

7 an

d 7.

39

basis

poi

nts


S84

Tabl

e 3

Esti

mat

ed P

rice

Eff

ects

of C

onsu

mm

ated

Hor

izon

tal M

erge

rs in

the

Hos

pita

l Ind

ustr

y

Stud

ySt

udy

Des

crip

tion

Evid

ence

on

Enfo

rcem

ent

Mar

gin

Mer

ger

Pric

e Eff

ects

Rep

orte

dC

onno

r, Fe

ldm

an, D

owd

(199

8)Es

timat

es h

ow m

ergi

ng

hosp

itals’

pric

es ch

ange

d re

lativ

e to

thos

e of

no

nmer

ging

hos

pita

ls

No

info

rmat

ion

prov

ided

on

indi

vidu

al m

erge

rs st

udie

d11

2 M

erge

rs ta

king

pla

ce

betw

een

1986

and

199

4Es

timat

es th

at, o

n av

erag

e,

mer

ging

hos

pita

ls pr

ices

fell

by a

bout

5%

; find

s evi

denc

e th

at p

rices

fell

less

in m

ore

conc

entr

ated

mar

kets

Kris

hnan

(200

1)Es

timat

es h

ow th

e pr

ices

of

high

-vol

ume

proc

edur

es a

t ho

spita

ls di

rect

ly a

ffect

ed b

y m

erge

rs ch

ange

d re

lativ

e to

ho

spita

ls in

the

sam

e m

arke

t an

d ot

her m

arke

ts

No

deta

iled

deta

iled

info

rmat

ion

prov

ided

on

indi

vidu

al

mer

gers

stud

ied

Exam

ines

chan

ge in

pric

es o

f 22

Ohi

o ho

spita

ls aff

ecte

d by

m

erge

rs in

199

4 or

199

5

Estim

ates

the

pric

e of

hig

h-vo

lum

e pr

oced

ures

incr

ease

d by

16.

5% a

t mer

ging

hos

pita

ls

Vita

and

Sac

her (

2001

)Es

timat

es h

ow m

ergi

ng

hosp

itals’

pric

es ch

ange

d re

lativ

e to

thos

e of

a co

ntro

l gr

oup

“Had

the

FTC

had

the

oppo

rtun

ity to

seek

a

prel

imin

ary

inju

nctio

n in

this

case

, it w

ould

hav

e do

ne so

” (p

. 68)

Dom

inic

an S

anta

Cru

z H

ospi

tal’s

acq

uisit

ion

of A

MI

Com

mun

ity H

ospi

tal (

1990

)

Estim

ates

Dom

inic

an p

rice

rose

by

23%

and

AM

I pric

e ro

se

by 1

7%

Daf

ny (2

009)

Estim

ates

how

riva

l hos

pita

ls ch

ange

d pr

ice

follo

win

g a

mer

ger

No

info

rmat

ion

prov

ided

on

indi

vidu

al m

erge

rs st

udie

dSa

mpl

e of

man

y m

erge

rs ta

king

pl

ace

betw

een

1989

and

199

6Es

timat

es th

at ri

val h

ospi

tals

incr

ease

d pr

ices

by

roug

hly

40%

Haa

s-W

ilson

and

Gar

mon

(2

011)

Estim

ates

how

mer

ging

ho

spita

ls’ p

rices

chan

ged

rela

tive

to th

ose

of a

cont

rol

grou

p

Mer

ger o

f onl

y tw

o ho

spita

ls in

W

auke

gan,

Illin

ois

Mer

ger o

f St.

Ther

ese

and

Vic

tory

hos

pita

ls (2

000)

Estim

ates

that

pric

e eff

ects

var

y by

cont

rol g

roup

, ins

urer

, and

es

timat

ion

met

hod

(−20

%

to 2

9%);

in m

ost c

ases

pric

es

decr

ease

d


S85

Mer

ger c

halle

nged

by

Fede

ral

Trad

e C

omm

issio

n 4

year

s aft

er m

erge

r con

sum

mat

ion

Mer

ger o

f Eva

nsto

n N

orth

wes

tern

Hea

lthca

re

Cor

pora

tion

and

Hig

hlan

d Pa

rk H

ospi

tal (

2000

)

Estim

ated

pric

e eff

ects

var

y by

co

ntro

l gro

up, i

nsur

er, a

nd

estim

atio

n m

etho

d (−

2%

to 8

0%);

the

over

whe

lmin

g m

ajor

ity o

f est

imat

ed p

rice

incr

ease

s wer

e po

sitiv

e an

d ec

onom

ical

ly a

nd st

atist

ical

ly

signi

fican

tTe

nn (2

011)

Es

timat

es h

ow m

ergi

ng

hosp

itals’

pric

es ch

ange

d re

lativ

e to

thos

e of

a co

ntro

l gr

oup

Stat

e of

Cal

iforn

ia

unsu

cces

sful

ly a

ttem

pted

to

bloc

k m

erge

r

Sutte

r’s p

urch

ase

of S

umm

it H

ospi

tal (

1999

)La

rge

pric

e in

crea

ses f

or S

umm

it va

ryin

g by

insu

rer a

nd

estim

atio

n m

etho

d (2

3% to

50

%);

no sy

stem

atic

evi

denc

e of

a p

rice

incr

ease

or d

ecre

ase

for S

utte

r-ow

ned

hosp

ital

Thom

pson

(201

1)Es

timat

es h

ow m

ergi

ng

hosp

itals’

pric

es ch

ange

d re

lativ

e to

thos

e of

a co

ntro

l gr

oup

Mer

ging

hos

pita

ls m

uch

clos

er

to e

ach

othe

r tha

n riv

al

hosp

itals

New

Han

nove

r Reg

iona

l M

edic

al C

ente

r acq

uisit

ion

of C

olum

bia

Cap

e Fe

ar

Mem

oria

l Hos

pita

l (19

98)

Estim

ated

pric

e eff

ects

var

y dr

amat

ical

ly b

y in

sure

r (−

30%

to 6

5%);

two

insu

rers

ex

perie

nced

a p

rice

incr

ease

, on

e a

pric

e de

crea

se, a

nd o

ne

little

mea

ning

ful c

hang

e in

pr

ice

rela

tive

to th

e co

ntro

l gr

oup


S86

Tabl

e 4

Esti

mat

ed P

rice

Eff

ects

of C

onsu

mm

ated

Hor

izon

tal M

erge

rs in

the

Petr

oleu

m In

dust

ry

Stud

ySt

udy

Des

crip

tion

Evid

ence

on

Enfo

rcem

ent

Mar

gin

Mer

ger

Pric

e Eff

ects

Rep

orte

dU

.S. G

over

nmen

t A

ccou

ntab

ility

Offi

ce

(GA

O) (

2004

)

Estim

ates

the

chan

ge in

w

hole

sale

pric

es d

ue to

m

erge

r; se

para

te p

rice

effec

ts e

stim

ated

for e

ach

spec

ifica

tion

of g

asol

ine

and

bran

ded

and

unbr

ande

d w

hole

sale

pric

e

Mer

gers

sele

cted

bec

ause

of

“the

ir tr

ansa

ctio

n siz

e, F

TC’s

revi

ew o

f the

m, o

r con

cern

s ex

pres

sed

by so

me

indu

stry

pa

rtic

ipan

ts a

nd st

ate

offici

als

we

[GA

O] i

nter

view

ed” (

p.

82)

Tosc

o’s p

urch

ase

of U

noca

l re

finer

y in

199

7

UD

S pu

rcha

se o

f Tot

al in

199

7

Join

t ven

ture

bet

wee

n M

arat

hon

and

Ash

land

Pet

role

um in

19

98

Shel

l Tex

aco

I (cr

eatio

n of

Eq

uilo

n) 1

998

Shel

l Tex

aco

II (c

reat

ion

of

Mot

iva)

199

8

Bran

ded

Cal

iforn

ia A

ir Re

sour

ces

Boar

d (C

ARB

) gas

: 6.8

cent

s pe

r gal

lon

(cpg

); un

bran

ded

CA

RB g

as: −

1.58

cpg

Bran

ded

conv

entio

nal g

as: −

.89

cpg;

unb

rand

ed co

nven

tiona

l ga

s: -1

.25

cpg

Bran

ded

conv

entio

nal g

as: .

7 cp

g;

unbr

ande

d co

nven

tiona

l gas

: .3

9 cp

g; b

rand

ed re

form

ulat

ed

gas:

.71

cpg;

unb

rand

ed

refo

rmul

ated

gas

: .86

cpg

Bran

ded

conv

entio

nal g

as: .

99

cpg;

unb

rand

ed co

nven

tiona

l ga

s: 1.

13 cp

g; b

rand

ed C

ARB

ga

s: −.

69 cp

g; u

nbra

nded

C

ARB

gas

: −.2

4 cp

gBr

ande

d co

nven

tiona

l gas

: −1.

77

cpg;

unb

rand

ed co

nven

tiona

l ga

s: −1

.24

cpg;

bra

nded

re

form

ulat

ed g

as: .

39 cp

g;

unbr

ande

d re

form

ulat

ed g

as:

.09

cpg


S87

BP

-Am

oco

1998

Bran

ded

conv

entio

nal g

as: .

4 cp

g;

unbr

ande

d co

nven

tiona

l gas

: .9

7 cp

g, b

rand

ed re

form

ulat

ed

gas:

.55

cpg;

unb

rand

ed

refo

rmul

ated

gas

: .4

cpg

M

arat

hon

Ash

land

Pet

role

um

(MA

P)–U

ltram

ar D

iam

ond

Sham

rock

(UD

S)

Bran

ded

conv

entio

nal g

as: 1

.38

cpg;

unb

rand

ed co

nven

tiona

l ga

s: 2.

63 cp

g

Exxo

n-M

obil

2000

Bran

ded

conv

entio

nal g

as: 3

.71

cpg;

unb

rand

ed co

nven

tiona

l ga

s: 5.

00 cp

g; b

rand

ed

refo

rmul

ated

gas

: 1.6

1 cp

g;

unbr

ande

d re

form

ulat

ed g

as:

1.01

cpg

Cho

uina

rd a

nd P

erlo

ff (2

007)

Estim

ates

a p

rice

equa

tion

sepa

rate

ly fo

r ret

ail a

nd

who

lesa

le g

asol

ine

pric

es;

usin

g th

is m

odel

, aut

hors

es

timat

e th

e m

erge

r pric

e eff

ects

of t

he 3

1 m

erge

rs a

nd

repo

rt th

e m

ean

and

rang

e of

est

imat

ed m

erge

r effe

cts

rath

er th

an se

para

te p

rice

effec

ts b

y m

erge

r

No

info

rmat

ion

prov

ided

as

to w

heth

er m

erge

rs w

ere

mar

gina

l

Six

refin

ery

and

25 re

tail

mer

gers

taki

ng p

lace

bet

wee

n 19

89 a

nd 1

998

Reta

il pr

ice:

mea

n re

finin

g m

erge

r pric

e eff

ect:

.43

cpg;

m

ean

reta

iling

mer

ger p

rice

effec

t: −.

04 cp

g; w

hole

sale

pr

ice:

mea

n re

finin

g m

erge

r eff

ect:

.57

cpg;

mea

n re

taili

ng

mer

ger e

ffect

: −.0

6 cp

g

Tayl

or a

nd H

oske

n (2

007)

Estim

ates

chan

ge in

who

lesa

le

and

reta

il ga

solin

e pr

ices

re

sulti

ng fr

om th

e m

erge

r in

four

mar

kets

A p

ress

repo

rt st

ated

that

the

Fede

ral T

rade

Com

miss

ion

(FTC

) rev

iew

ed a

nd

allo

wed

the

mer

ger w

ithou

t co

nditi

ons

Join

t ven

ture

bet

wee

n M

arat

hon

and

Ash

land

Pet

role

um in

19

98

Who

lesa

le p

rice

incr

ease

s in

two

of fo

ur m

arke

ts; r

etai

l cha

nges

in

onl

y on

e of

thos

e tw

o, li

kely

be

caus

e of

a co

st sh

ock

Sim

pson

and

Tay

lor (

2008

)Es

timat

es ch

ange

in re

tail

gaso

line

pric

e re

sulti

ng fr

om

tran

sact

ion

in si

x aff

ecte

d m

arke

ts in

U.S

. Mid

wes

t

No

chal

leng

e; a

rgum

ent m

ade

that

the

mer

ger i

ncre

ased

m

arke

t con

cent

ratio

n m

ore

than

man

y ot

her p

rom

inen

t m

erge

rs in

pet

role

um

indu

stry

MA

P ac

quire

s Mic

higa

n A

sset

s of

UD

S (1

999)

No

mea

ning

ful c

hang

e in

reta

il ga

solin

e pr

ices


S88

Tabl

e 4

(Con

tinue

d)

Stud

ySt

udy

Des

crip

tion

Evid

ence

on

Enfo

rcem

ent

Mar

gin

Mer

ger

Pric

e Eff

ects

Rep

orte

d

U.S

. Gov

ernm

ent

Acc

ount

abili

ty O

ffice

(2

009)

Estim

ates

the

pric

e eff

ects

of

seve

n pe

trol

eum

mer

gers

ta

king

pla

ce b

etw

een

2001

an

d 20

05; a

ll sp

ecifi

catio

ns

of g

as p

oole

d in

a si

ngle

re

gres

sion

Mer

gers

sele

cted

into

stud

y if

the

valu

e w

as g

reat

er th

an

$200

mill

ion,

occ

urre

d be

twee

n 20

00 a

nd 2

007,

and

ad

equa

te p

rice

data

wer

e av

aila

ble

Che

vron

/Tex

aco,

200

0: o

il an

d ga

s res

erve

sPh

illip

s Pet

role

um C

ompa

ny/

Tosc

o, 2

001:

eig

ht re

finer

ies

and

appr

oxim

atel

y 6,

400

reta

il ga

solin

e st

atio

nsV

aler

o/U

DS,

200

1: se

ven

refin

erie

s and

app

roxi

mat

ely

5,00

0 re

tail

gaso

line

stat

ions

Roya

l Dut

ch S

hell/

Texa

co, 2

001:

Te

xaco

’s sh

are

of M

otiv

a an

d Eq

uilo

n do

wns

trea

m jo

int

vent

ures

Phill

ips P

etro

leum

Com

pany

/C

onoc

co, 2

001:

oil

and

gas r

eser

ves,

refin

ing

and

mar

ketin

g as

sets

Prem

cor/

Will

iam

s, 20

02: o

ne

refin

ery

Val

ero/

Prem

cor,

2005

: fou

r re

finer

ies

Resu

lts n

ot st

atist

ical

ly si

gnifi

cant

Resu

lts n

ot st

atist

ical

ly si

gnifi

cant

Bran

ded

gaso

line

pric

e: 1

.06

cpg;

un

bran

ded

gaso

line

pric

e: n

ot

stat

istic

ally

sign

ifica

ntRe

sults

not

stat

istic

ally

sign

ifica

nt

Bran

ded

gaso

line

pric

e: −

1.64

cp

g; u

nbra

nded

gas

olin

e pr

ice:

−1

.14

cpg

Resu

lts n

ot st

atist

ical

ly si

gnifi

cant

Bran

ded

gaso

line

pric

e: n

ot

stat

istic

ally

sign

ifica

nt;

unbr

ande

d ga

solin

e pr

ice:

1.

13 cp

g


S89

Hos

ken,

Silv

ia, a

nd T

aylo

r (2

011)

Estim

ates

chan

ge in

who

lesa

le

and

reta

il ga

solin

e pr

ices

Did Robert Bork Understate the Competitive Impact of ... · determining which horizontal mergers...

Documents

Transcript of Did Robert Bork Understate the Competitive Impact of ... · determining which horizontal mergers...