Increased Margins and Merger Assessment: No Need to Fret

Gregory J Werden (DOJ) and Luke M Froeb (Vanderbilt) discuss Increased Margins and Merger Assessment: No Need to Fret.

ABSTRACT: Data-driven, case-by-case assessment of likely merger effects, using standard analytical tools, accounts for characteristics of the relevant market and of the merging firms, most especially margins. Thus, the observation of increased margins throughout the economy warrants no change in merger control. To explain, we begin with what margins are and what factors cause margins to be high or low. We then review how margins came to be accounted for in merger assessment. Finally, we demonstrate that increased margins can aggravate or mitigate the unilateral competitive effects from a horizontal merger. Offsetting forces have different relative strengths depending on market circumstances, but these circumstances are accounted for using standard tools.