Price Theory and Merger Guidelines

Sonia Jaffe, Glen Weyl, Mar 14, 2011

The innovations of the new U.K. and U.S. merger guidelines released last year have excited many economists. On the one hand, they apply in nearly as broad a range of merger contexts as traditional market definition and HHI-based approaches do. On the other hand, they incorporate the explicit economic grounding in the logic of differentiated products competition enjoyed by merger simulation. Furthermore, the core intuition behind the guidelines, as clearly exposited by Farrell and Shapiro, is simple and transparent. It can be explained as follows:

If

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