Application of Empirical Methods in Merger Analysis

Abstract

The variety of empirical methods that can be applied to assess the competitive implications of proposed mergers has increased over time. This is due, in part, to the greater availability of data of all types, ranging from specific transaction level data collected at the retail store to aggregate product sales and profitability data. The range of alternative methodologies also reflects advances in theoretical economics, as well as econometric techniques, which have enabled economists to use and analyze data to answer difficult questions more easily and readily. The increasing use of modern economic tools is part of a general trend in which merger reviews have become more sophisticated and complex. In this report, published as part of a larger report by the Competition Policy Research Center, Fair Trade Commission of Japan (CPRC/JFTC), we survey a broad range of techniques that have been used to assess market definition and market power issues in the context of a merger review. The report also addresses techniques that attempt to estimate the competitive impact of a proposed merger or acquisition. Case studies are used to demonstrate how the techniques have been used in practice.