On the Risk of Using a Firm-Level Approach to Identify Relevant Markets

21 Pages Posted: 16 Nov 2020

See all articles by Timo Autio

Timo Autio

affiliation not provided to SSRN

Jorge Padilla

Compass Lexecon

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF

Pekka Sääskilahti

Compass Lexecon

Lotta Väänänen

Compass Lexecon

Date Written: September 28, 2020

Abstract

In a recent influential paper Coate et al. (2020) have criticized the standard firm-level approach to market definition in merger review. They argue why a market-level approach to critical loss is more appropriate than a firm-level critical loss analysis. Their conclusion is that under certain plausible demand scenarios --- i.e., non-linearity of demand functions --- a diversion-based firm-level analysis could easily reach the wrong answer on market definition. We extend their analysis by showing that in standard environments used by the most recent theoretical and empirical academic work on merger analysis (namely CES and logit demand functions), a firm level approach actually leads to an excessively narrow market definition as opposed to a market-level approach, thereby increasing the risk of type I errors.

Keywords: Critical Loss Analysis, Firm- and Market-level Approach, Mergers, Non-linear Demand

JEL Classification: D43, G34, L4, L13

Suggested Citation

Autio, Timo and Padilla, Jorge and Piccolo, Salvatore and Sääskilahti, Pekka and Väänänen, Lotta, On the Risk of Using a Firm-Level Approach to Identify Relevant Markets (September 28, 2020). Available at SSRN: https://ssrn.com/abstract=3701141 or http://dx.doi.org/10.2139/ssrn.3701141

Timo Autio

affiliation not provided to SSRN

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

Salvatore Piccolo (Contact Author)

University of Bergamo, Compass Lexecon and CSEF ( email )

via de caniana 2
24127
Bergamo, BG 24127
Italy

Pekka Sääskilahti

Compass Lexecon ( email )

Helsinki
Finland

Lotta Väänänen

Compass Lexecon ( email )

United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
97
Abstract Views
311
rank
321,749
PlumX Metrics