Unilateral Effects Analysis in Merger Review: Limits and Opportunities

"Academic economists have long supported the virtual replacement of collusion analysis with a more mathematical unilateral effects model for the evaluation of merger-related competitive concerns, especially in differentiated product markets. The 1992 Merger Guidelines introduced the basic concept; models of unilateral effects generalised the dominant firm theory noted in the 1982 Guidelines to focus a broader set of competitive concerns. The 2010 Merger Guidelines broadened the scope of unilateral effects analysis to address additional situations in which theory predicts the merger creates the potential for the combined firm to materially reduce competition. Various models illustrate price effects, given assumptions on market structure and merger specific efficiencies. Although unilateral analyses for both differentiated and homogeneous goods are presented in the Merger Guidelines, the bulk of the discussion concentrates on differentiated markets."