Predicting the Competitive Effects of Mergers by Listening to Customers
Ken Heyer, EAG 06-11, September 2006
Forthcoming in Antitrust Law Journal (2007).
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Abstract:
This article explores the role of customers in informing competition authorities and
courts about the likely effects of proposed mergers. It discusses when, and about what,
customers are most likely to be valuable sources of information. It also discusses the
potential limitations of customer testimony. Customer views can certainly be informative.
However, they are best employed as a complement to, rather than a substitute for,
economic analysis that employs more objective evidence. Although the welfare of
consumers appears increasingly to have been accepted by competition authorities as the
appropriate goal for merger policy, customers will not necessarily have available the
information required to predict the economic consequences of a proposed merger. And
even when they do, customers may be reluctant reliably and accurately to provide that
information, or to express their true opinions, to investigators and before courts. Worse
yet, customers may themselves stand to benefit from mergers that are anticompetitive, or
may be harmed by mergers that are welfare-enhancing. Appreciating both the strengths
and the limitations of customer input is critical to the cause of sound merger enforcement,
not only in the U.S., but overseas as well. A growing number of countries, many of whom
have less experience or expertise than do competition authorities in the U.S., have begun
to adopt merger control policies themselves, and are in the process of developing and
implementing investigative best practices. They, at least as much as we, can benefit from
better understanding the advantages, as well as the potential pitfalls, of using the views of
customers to help ensure the welfare of consumers.