Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index

Abstract

This paper introduces the Werden-Froeb Index (WFI) to assist in evaluating merger-specific efficiencies in horizontal mergers. The index measures the weighted average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the (full or partial) merger is consummated. The WFI is well defined, objective and robust, and it has relatively low information requirements. We propose to use the index as a natural complement to concentration measures such as the Hirschmann-Herfindahl Index in the assessment of horizontal mergers. This discussion paper has resulted in a publication in The Journal of Industrial Economics , 56(4), 778-808.Merger control; efficiency defense; index; HHI