Recapture Ratios in Merger Analysis

Serge Moresi, Charles River Associates (CRA) and Hans Zenger, Charles River Associates (CRA) examine Recapture Ratios in Merger Analysis.

ABSTRACT: Most quantitative tools for assessing potential competitive effects of mergers (e.g., upward pricing pressure indices and merger simulation models) rely heavily on recapture ratios. We show how recapture ratios can be approximated using simple microeconomic relationships and commonly-used parameters — namely, the products’ sales, profit margins, and group elasticity of demand. We illustrate our approach for both horizontal and vertical product differentiation.