Malcolm B. Coate

Empirical Analysis of Merger Enforcement Under the 1992 Merger Guidelines

This paper presents an analysis of merger enforcement at the Federal Trade Commission under the 1992 Merger Guidelines. The econometric analysis suggests that enforcement decisions are best predicted with the Herfindahl index when the relevant theory is collusion and the number of significant rivals when the relevant theory is unilateral effects. Evidence such as “hot” documents, customer complaints, and historical events suggestive of past competitive problems also increase the chance of a challenge. Mirror image considerations suggestive of continued post-merger competition (“cold” documents, customer support, and procompetitive events) reduce the probability of challenge in one specification. Copyright Springer 2005

Pitfalls in portfolio planning

Abstract This paper presents an analysis and comparison of the Boston Consulting Group, McKinsey & Co., and Arthur D. Little portfolio models and a discussion of the theoretical and operational problems with the general portfolio construct. The models seem to share the goal of optimizing the firms financial performance and the same fundamental assumptions. The strategies suggested by each model will not always be the same because of differences in the structure of the three models. Also strategic analysis of each unit is necessary to avoid the pitfalls caused by the theoretical and operational problems with the portfolio construct.

A Test of Political Control of the Bureaucracy: The Case of Mergers

This paper tests a model of political control of the bureaucracy using a data set of mergers evaluated by the Federal Trade Commission between 1983 and 2000. The results support a sophisticated control model in which the President sets the agenda within the scope of policies acceptable to Congress. Changes in Presidential administration and in the composition of Congress can, but do not necessarily, affect merger policy. Instead, the shift in policy depends on how the institutions of the Presidency and Congress interact both in the previous and current periods

Economics, the Guidelines and the Evolution of Merger Policy

The last 25 years has seen a dramatic evolution of U.S. merger law moving from a situation in the mid-1960s where almost any significant horizontal merger could be illegal to a situation where only a few horizontal mergers are illegal. Most of the change occurred in the Reagan deregulation in the 1980·s. However. unlike other forms of deregulation over the last 25 years, merger law evolved without any congressional action and with little Supreme Court guidance. Instead, the adjustment in merger regulation can be described as the endogenous response of the legal

Transparency at the Federal Trade Commission: The Horizontal Merger Review Process 1996-2003

This paper empirically analyzes the Federal Trade Commissions merger enforcement decisions, to supplement the 2004 release of the Horizontal Merger Investigation Data. The study provides insights into the review process for both multi- and single-market mergers. We present concentration-based models, customized to the relevant industry, for mergers with large numbers of overlaps. When more detailed data is available (for mergers with 3 or fewer overlaps), the analyses also focus on additional factors. We find evidence to suggest that, in addition to market structure, verified customer complaints and entry considerations also affect the enforcement decision. Finally, the study notes that the Commissions enforcement policy has been stable during the 1996 through 2003 time period.

The Shifting Sands of Merger Enforcement at the Federal Trade Commission

This paper presents a statistical model for Federal Trade Commission merger enforcement. After reviewing the literature, economic and political variables are posited to explain bureaucratic merger decisions. Various probit models are estimated with the results suggesting that the Commission enhanced the consideration given to merger-specific efficiencies in response to exogenous pressure to increase merger enforcement. Overall, the tightening of merger policy appears to have been focused on the transactions lacking documented cost savings

Are Judges Leading Economic Theory? Sunk Costs, the Threat of Entry and the Competitive Process*

In this paper, we attempt to bring theoretical form to a particular entry argument that has found favor in the courts. We suggest that sunk costs may not be a major impediment to entry when a group of customers can commit to an entry enhancing strategy. Buyers have strong incentives to adopt such strategies, because they benefit directly from the resulting lower prices. The simplest example involves a large buyer that is able to guarantee an entrant a market for its product. Long term contracts or even informal purchase commitments (backed by customer reputation) may also allow the entrant to obtain a guarantee of sufficient business to make the entry profitable. Once entry is thought likely to occur, the existing competitors may be unwilling to attempt a price increase of any magnitude. Thus, the threat of entry can maintain competitive prices even in the presence of sunk costs. In section II, we motivate the analysis by discussing the current controversy over the role entry conditions play in an antitrust merger review. Then we discuss the necessary assumptions for a model of how the threat of entry can deter any price increase in the presence of sunk costs. We note that these conditions are different from those commonly used in the economic literature.

Do Court Decisions Drive the Federal Trade Commission’s Enforcement Policy on Merger Settlements?

Mergers are generally conglomerate in nature with only minor (if any) horizontal overlaps. Under U.S. law, an enforcement agency may challenge any anticompetitive aspect of the merger and the consequent delay associated with litigation would impose costs on the firm. These costs may give the enforcement agency “leverage” to extract a settlement even when the firm would prevail in court. This paper explores whether the FTC’s decisions to challenge transactions approximate the case law. We find that the representative enforcement regimes of the FTC and the courts are remarkably similar, although the FTC credits efficiencies, while courts consider buyer sophistication as a mitigating factor.

The Use of Natural Experiments in Merger Analysis

Natural experiments may serve as a test of an economic theory that purports to evaluate the competitive effects of a proposed transaction and therefore play an important role in merger analysis. Using aggregate reviews of Federal Trade Commission merger studies, it is possible to identify a number of quantitative and qualitative experiments supportive of unilateral effects, coordinated interaction, or continued competition theories. The court decisions in Staples, Oracle, and Whole Foods play a role in structuring the review in unilateral cases, while Judge Posner’s commentary on performance analysis is relevant in coordinated interaction cases. Other experiments show either no structure-performance relationship in a market or undermine a key characteristic of Guidelines analysis to imply that the merger in question is not likely to be anticompetitive. A final section evaluates the linkage between the experimental evidence, supplemented at times with validated customer complaint and hot document findings, and the merger challenge decision. While the results show the bulk of the merger challenges were substantiated by some type of evidence, a number of monopoly and duopoly matters are challenged on pure structural grounds.

Efficiencies in Merger Analysis: An Institutionalist View

It is well known that an optimal merger policy requires consideration of efficiencies in enforcement decisions. However, as understanding of a markets equilibrium structure is required to integrate the efficiency defense into a merger analysis, efficiency evaluations are controversial. New Institutional Economics further complicates the discussion by highlighting the need to address a range of transaction cost issues. This paper reviews the debate and promotes the application of an institutionally-based business strategy analysis to evaluate both efficiencies and competitive concerns in an integrated framework. In special cases, formal mathematical analysis may be used to balance the two concerns, while in most situations a qualitative presentation will be required. The paper concludes with a discussion of the current state of the efficiency defense and a proposal for the qualitative use of customer opinions to balance competitive concerns with efficiency benefits.