Concentration Screens for Horizontal Mergers
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 allow mergers to proceed that cause consumer harm.
We thank Nate Miller and Matt Weinberg for generously providing the data we use in Section 4, and for responding so helpfully to our many questions and requests. We also thank Carl Shapiro for sharing his knowledge of Merger Guidelines history, Joe Farrell, Luke Froeb, Bernhard Ganglmair, Louis Kaplow, John Kwoka, Craig Peters, Patrick Rey, Nancy Rose, Steve Salop, Mark Satterthwaite, Nicolas Schutz, Carl Shapiro, Paolo Somaini, John Vickers, Ali Yurukoglu and seminar audiences at Berkeley, Mannheim, Stanford, the 2019 Northwestern University antitrust conference, and the New Zealand Competition Commission for comments, and Federico Innocenti and Zi Yang Kang for their excellent RA work. Nocke gratefully acknowledges financial support from the German Research Foundation (DFG) through CRC TR224 (Project B03). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.