Thursday, April 28, 2011
A Return to Simplicity? A History of Developments in the Economic Analysis of Mergers
Posted by D. Daniel Sokol
Diana Jackson (CRA) asks A Return to Simplicity? A History of Developments in the Economic Analysis of Mergers.
ABSTRACT: The recent introduction of simplified economic approaches to merger analysis (such as the ‘upward pricing pressure’ and ‘indicative price increase’ tests) might seem to indicate a return to simplicity in the economic assessment of mergers. Certainly these measures take a step back from the highly resource intensive demand estimation and merger simulation tools commonly applied in recent cases. While these simple tools do incorporate many of the main insights of more recent developments in the economic analysis of mergers, their simplicity is achieved by making a range of additional assumptions. Therefore, these tools are likely to be used as screening tools for potential merger effects, rather than as replacements for more complex techniques. This article tracks some of the key historic developments in economic approaches to merger analysis, placing these ‘new’ tests in their historic context, and argues that whether ‘simple’ or ‘sophisticated’ analyses are used, the basics must not be forgotten: know your market and know your data.