Tag Archives: Merger Review

Key findings of the literature on innovation and horizontal mergers

According to Kokkoris and Valletti (2020), the key takeaways from the economics literature on innovation considerations in horizontal mergers are the following:

  1. It is untenable to say that the prospect of higher prices is enough to conclude that effects of merger on innovation will be positive. Price effects on innovation are ambiguous.
  2. Innovation effects assessment should not be avoided simply because of uncertainty. The competition authority does not need to predict winners or successful products. Rather, an assessment of the impact of innovative efforts on expected profits should be conducted. This is enough to have a meaningful analysis. The agency can do this by assigning a likelihood of success to innovation efforts and estimating expected profits on this basis, as well as incentives on ex ante innovation competition.
  3. Two channels through which mergers affect innovation: internalizing within the merged entity the innovation externalities produced by the merging firms (R&D by one competitor decreases expected profits of other competitors, therefore merger leads to lower R&D by avoiding this externality) and price coordination in the market (which has ambiguous effects on innovation because it can increase expected profits of both innovation and non-innovation activities relative to each other)
  4. Focus should be on overall welfare and not just on innovation effects because ultimately what matters is the consumer. Therefore, dynamic and static effects should be balanced. It should be taken into account how much of the innovation enhanced welfare will accrue to consumers.
  5. It is important to recognize that there can be a scenario where R&D by a single firm may have an impact on aggregate demand not just its own. Thus, R&D by one firm could actually have positive externalities on competitors. This determines which model should be used to assess the effects of the merger.
  6. The agency has to analyze the merger-specific efficiencies (discarding efficiencies that could be otherwise achieved, for example, by licensing technologies) on the merged entity R&D capabilities. This depends on the assumptions made on the R&D cost function, specifically on how fast R&D costs rise to produce a given increased likelihood of success.

You can find the full paper here.

What do you think?

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On the use of quantitative methods in Brazil’s merger control

Quantitative Methods and Mergers Effects in Competition Policy: The Brazilian Case

Camila C. Pires-Alves, Marcos Puccioni de Oliveira Lyra, Marina Maria Gutierrez Bonfatti. World Competition (2019)


The article aims to discuss the use of quantitative methods in quantifying merger effects as evidence, taking the particularities of the Brazilian experience and considering both technical, institutional and policy issues. Therefore, the article investigates evolution and patterns in the Brazilian institutional framework and jurisprudence in terms of technical aspects and adequacy of implementation, policy issues regarding the acceptance within the administrative tribunal and the main challenges imposed. The information collected considered all the merger cases, as far as we know, in which quantitative methods were applied by Administrative Council of Economic Defense (CADE) in order to measure, estimate or imply the merger’s potential anticompetitive effect on prices. Among the conclusions we find that the models are employed in few complex cases and mostly to sustain some restriction by the authority. We also note that the authority seems concerned about sensibility analysis, in some cases revealed by the combination of the use of different methods and/or competitive models.

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An analysis of one of El Salvador’s Landmark Merger Cases in Lalibrecompetencia

Editorial Team, DWA

To our Spanish speaking readers, we recommend a post published in Lalibrecompetencia (which you can find here) by Guillermo Castro. He writes about one of the most interesting aspects in the analysis of merger cases in oligopolistic markets: the identification of maverick firms. Guillermo analyses a sequence of two decisions of the Salvadoran antitrust authority in which the merger between two of the largest telecommunication companies in the country was blocked, in large part because the acquired company was deemed to be a disruptive agent in the market. In the first attempt to merge, the two companies were required to divest a significant portion of the resulting firm’s spectrum holdings (which they refused to do) and in the second decision the transaction was enjoined. It is hard to miss the parallel between the Salvadoran case and the failed AT&T – T-Mobile attempt to merge just a year before. Surely the US case had some influence in the Salvadoran authority’s decision. In both cases, the resulting firm was going to become the biggest player in the market and both involved the acquisition of a firm that was deemed to be the maverick. Without further introduction, we invite our Spanish speaking audience to read Guillermo’s post in Lalibrecompetencia.

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