Tuesday, December 18, 2007
Assessing the Competitive Effects of a Merger: Empirical Analysis of Price Differences Across Markets and Natural Experiments
Posted by D. Daniel Sokol
In an article by Gregory K. Leonard and Lawrence Wu in NERA's fall issue of Antitrust Insights provides a great overview for non-economists to understand the econometric work behind cases like Whole Foods.
ABSTRACT: The techniques used by the economist expert witnesses in FTC v. Whole Foods Market, Inc.1 illustrate two approaches that exemplify modern empirical merger analysis. One approach focuses on the relationship between price and the number and identities of competitors. The second approach analyzes historical events or “natural experiments” in the marketplace, such as the responses of incumbent firms to new entry. In our discussion of both approaches, we address three key issues: (1) What antitrust question does each technique address, specifically in the context of assessing the likely competitive effects of a merger? (2) What assumptions and data are needed to implement each technique? And (3) What key questions should counsel ask economists to evaluate the appropriateness
of these types of studies?