The Deterrence Effects of U.S. Merger Policy Instruments

Posted by D. Daniel Sokol

Joseph A. Clougherty, University of Illinois at Urbana-Champaign, Centre for Economic Policy Research (CEPR) and Jo Seldeslachts, University of Amsterdam, Tinbergen Institute have a new paper on The Deterrence Effects of U.S. Merger Policy Instruments.

ABSTRACT: We estimate the deterrence effects of U.S. merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the U.S. DOJ and FTC allow industry based measures over the 1986-1999 period of the conditional probabilities for eliciting investigations, challenges, prohibitions, court-wins and court-losses: deterrence variables akin to the traditional conditional probabilities from the economics of crime literature. We find the challenge-rate to robustly deter future horizontal (both relative and absolute) merger activity; the investigation-rate to slightly deter relative horizontal merger activity; the court-loss-rate to moderately affect absolute-horizontal merger activity; and the prohibition-rate and court-win-rate to not significantly deter future horizontal mergers. Accordingly, the conditional probability of eliciting an antitrust challenge (i.e., remedies and prohibitions) involves the strongest deterrence effect from amongst the different merger policy instruments.