Heterogeneous Merger Impacts on Competitive Outcomes

Mergers realize heterogeneous competitive effects on profits, production, and prices. To date, it is unclear whether differential merger outcomes are caused mostly by firms’ technology or product market attributes. Furthermore, empirical merger studies conventionally assume that, conditional on regressors, the impact of mergers on outcomes is the same for every firm. We allow the merger responses to vary across firms, even after controlling for regressors, and apply a random-coefficient or heterogeneous treatment effect model (in the context of Angrist and Krueger (1999), Heckman, Urzua, and Vytlacil (2006), and Cerulli (2012)). Based on a comprehensive dataset on the static random access memory industry, we find that firms’ postmerger output further increases (and postmerger price further declines) if merging firms are more efficient, operate in more elastic product markets, are more innovative, and acquire knowledge in technological areas that are relatively unexplored to themselves. A further interesting insight is that product market characteristics cause stronger postmerger outcome heterogeneities than do technology market characteristics. We also find that the postmerger effects accounting for heterogeneities differ greatly from those that consider homogeneous postmerger outcome effects. Our estimation results provide evidence that ignoring heterogeneous outcome effects can result in heterogeneity bias, just as ignoring premerger heterogeneities can lead to selectivity bias

Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits

Naturally, competition policy is based on competition economics made applicable in terms of law and its enforcement. Within the different branches of competition economics, modern industrial economics, or more precisely gametheoretic oligopoly theory, has become the dominating paradigm both in the U.S. (since the 1990s Post-Chicago movement) and in the EU (so-called more economic approach in the 2000s). This contribution reviews the state of the art in antitrust-oriented modern industrial economics and, in particular, critically discusses open questions and possible limits of basing antitrust on modern industrial economics. In doing so, it provides some hints how to escape current enforcement problems in industrial economics-based competition policy on both sides of the Atlantic. In particular, the paper advocates a change of the way modern industrial economics is used in competition policy: instead of more and more case-by-cases analyses, the insights from modern industrial economics should be used to design better competition rules