Assessing the Consequences for Competition
4. Methodology for assessment of mergers and remedies 4.0 INTRODUCTION The purpose of this chapter is to introduce our proposed methodology for assessing the eﬃcacy of merger remedies: ‘basic’ simulation founded in oligopoly theory. We start from the position that any remedy should be assessed in terms of how far it succeeds in restoring the market to a level of competition equivalent to that existing before the merger. This requires an understanding of: (a) the pre-merger nature of competition; (b) what would have happened post-merger, had the remedy not been imposed; and (c) what can be expected to happen post-remedy. The initial ﬁnding of an adverse eﬀect of the merger is based on comparison of (b) with (a). Remedy appraisal is associated with a comparison of (c) with (b). We argue that these alternative outcomes are best identiﬁed by simulation of the market.1 The ex ante eﬃcacy of a remedy can be judged by the extent to which it yields an outcome that is at least as good as pre-merger. We begin with an informal description of the basic idea. The essence of the methodology is as follows. Faced with any merger and proposed remedy, one ﬁrst forms an opinion of the nature of competition in the market concerned. This is then formalized into a relevant oligopoly model. The analytical implications of the merger are then derived within the model – both with and without remedies. In order to quantify those implications, one needs to calibrate (that...
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