LAW & ECONOMICS: HORIZONTAL MERGERS - SIMULATION TECHNIQUES - CONSUMER WELFARE - PRE-MERGER SITUATION - HYPOTHETICAL POST-MERGER SITUATION - MERGER SIMULATION TECHNIQUE - ALTERNATIVE DIVESTITURE SCENARIOS

Horizontal merger analysis and the use of simulation techniques

The assessment of mergers relies on the comparison of consumer welfare between the pre-merger situation, which can be observed, and the hypothetical post-merger situation, which must be predicted. The merger simulation technique is a rigorous way to make such a prediction. It can be used both for horizontal mergers and for vertical ones, and it can help one to assess the impact of alternative divestiture scenarios as well as the impact of merger-generated synergies. This paper describes the underlying principles and the practical implementation of this techniques, with references to several recent mergers.

1. In the last two decades, competition agencies have shown a growing interest in the use of quantitative techniques. On the academic side, much recent research has addressed the challenge of providing sound empirical evidence on issues such as the presence of market power, the effect of mergers or the existence of collusive behavior. In this paper we discuss the need for quantification in the context of merger analysis and summarize the discussion on the merits of different techniques for the assessment of the impact of mergers. We then describe one of them: the merger simulation approach, an increasingly common quantitative tool, and discuss its practicability. I. The need for quantification 2. In merger review, the main task consists in assessing the likely impact of a

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Jérôme Foncel, Horizontal merger analysis and the use of simulation techniques, May 2009, Concurrences Review N° 2-2009, Art. N° 25881, www.concurrences.com

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