Efficiencies Analysis in Horizontal Merger Cases [CC]

Efficiencies Analysis in Horizontal Merger Cases [CC] — CLE 60 min

Merger efficiencies tend to exert downward pressure on prices, and upward pressure on quality and innovation. There is (mostly) a consensus that the benefits from these efficiencies should somehow be weighed against the harm arising from the elimination of whatever competition had previously existed between the merging firms. But there are many questions, both conceptual and practical, about how this weighing should be done. These questions are the subject of this webinar.

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Closed Captioned.

A merger efficiency is a merger-induced reduction in the costs of one or both of the merging firms. Cost efficiencies involve reductions in the cost of producing output and are a factor in nearly every horizontal merger case. Quality efficiencies involve reductions in the cost of producing quality, and are a major factor in merger cases where product quality is highly important, particularly hospital and other healthcare provider mergers. Innovation efficiencies involve reductions in the cost (maybe only in a probabilistic sense) of successful innovation.

These efficiencies, when they exist, tend to exert downward pressure on prices and upward pressure on quality and innovation. A major element of contemporary merger analysis involves weighing these beneficial efficiency effects (assuming that they meet certain requirements such as merger specificity) against the harmful effects (upward pressure on prices and downward pressure on quality and innovation) * arising from the fact that whatever competition had previously existed between the merging firms will no longer exist after the merger.

The idea that the efficiency benefits of mergers should somehow be weighed against competitive harm is straightforward and (mostly) uncontroversial. But beyond that high-level principle, there are many questions and significant disagreements. In this panel, we will discuss a number of these questions, including:

Does an efficiency defense actually exist under the law?
What empirical economic evidence exists on efficiencies? (Note that merger retrospectives can only measure the combined effects of efficiencies and lost competition.)
Can efficiencies be negative (i.e., increase costs)?
How convincing are the contemporary quantitative economic methods for weighing efficiencies against lost competition? How necessary are they as part of a good merger case?
What qualitative evidence on efficiencies is or is not convincing?
Do/should efficiencies only count insofar as they will be passed through to consumers? Do any other efficiencies count at all? If so, what kinds and how much?
When there is uncertainty, how much should we worry about false positives vs. false negatives? Does this depend on the type of efficiency claim (cost vs. quality vs. innovation)?
Is there/should there be a "standard deduction"-style assumption (whether implicit or explicit) that any merger, absent case-specific evidence, is assumed to have a certain baseline level of efficiency?
(And if so, does/should that standard deduction implicitly credit any efficiencies that are not passed through to consumers?)
Do/should merger-induced reductions in the merging firms' input costs "count" as efficiencies?
Are efficiencies relevant in labor monopsony cases?

Please note that while this discussion will inevitably touch on some parts of the highly controversial debate regarding the "consumer welfare standard," that debate is NOT the subject of this webinar.

*The effects of merger-induced reductions in competition on quality and innovation are not straightforward. But to a rough first approximation the statement in the main text is correct.

Moderators

Panelists

Daniel Simon Francis, Jeremy Sandford, John M Yun, Rohan Kochikar Pai

Sponsors

American Bar Association, Econ One Research Inc

Product Code

CE2212ECOOLC

Duration

60

Publication Date

12/7/2022 12:00:00 AM

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