Concentration-Based Inference for Evaluating Horizontal Mergers

Paul S. Koh

Papers from arXiv.org

Abstract: Antitrust authorities routinely rely on concentration measures to evaluate the potential negative impacts of mergers on consumer welfare. Using a first-order approximation argument with logit and CES demand, I characterize a simple formula that shows the welfare effect of a merger on consumer surplus is proportional to the change in the Herfindahl-Hirschman Index (HHI), where the proportionality coefficient depends on the price responsiveness parameter, market size, and the distribution of market shares within and across the merging firms. My results imply that merger harm is correlated with the merger-induced change in HHI but not the level of pre-merger HHI. I provide numerical evidence on the accuracy of my formula.

Date: 2024-07, Revised 2025-04
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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