The Need to Measure the Effect of Merger Policy and How to Do It
Dennis W. Carlton, EAG 07-15, December 2007
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Abstract:
In this article, I explain the inadequacy of our current state of knowledge regarding
the effectiveness of antitrust policy towards mergers. I then discuss the types of
data that one must collect in order to be able to perform an analysis of the
effectiveness of antitrust policy. There are two types of data one requires in order
to perform such an analysis. One is data on the relevant market pre and post
merger. The second is data on the specific predictions of the government agencies
about the market post-merger. A key point of this article is to stress how weak an
analysis of only the first type of data is. The frequent call for retrospective studies
typically envisions relying on just this type of data, but the limitations on the
analysis are not well understood. As I explain below, retrospective studies that ask
whether prices went up post merger are surprisingly poor guides for analyzing
merger policy. It is only when the second type of data is combined with the first
type that a reliable analysis of antitrust policy can be carried out. There is a need
both to collect the necessary data and to analyze it correctly.