Horizontal Mergers: Triage and Treatment

Abstract

The pursuit of any sort of structural policy towards oligopoly presupposes that we can recognize anticompetitive structures when we see them. Unfortunately, that requisite is not easy to meet, and there is a temptation to avoid difficult analysis in favor of standards that are apparently precise but in fact very approximate. When considering merger standards, it is important to bear in mind that policy takes place in stages. There is a difference between deciding on guidelines for triage -- guidelines as to what cases to investigate or oppose& -- and for treatment, the judicial standard to be used. I believe merger policy should be explicitly conducted as a twostage process. In the first stage, fairly simple tests should be used to decide what cases should be further investigated. I would use concentration measures heavily (but not exclusively) here and would consider a variety of reasonable market definitions. In the second stage, prospective mergers that fail such tests would be investigated in considerably more detail. This investigation will require a more sophisticated approach to market definition and concentration than is needed at the first stage.