Quantifying the Effects from Horizontal Mergers in European Competition Policy

This paper starts from a recent case to study how merger analysis in Europe may potentially be improved through simulation analysis. Starting from the geographic market definition in the Merger Decision, we formulate and estimate an oligopoly model with differentiated products. The model is simulated to account for the changed multiproduct ownership structure after the merger. We show how our first two tests, a potential and an actual market power test, produce useful information, complementary to the traditional dominance principle adopted in the European Union. We also show how simulation analysis can provide useful additional information that goes beyond the traditional dominance principle. This is illustrated through two examples. First, we analyze the effects of efficiencies through cost savings. Second, we compare alternative merger sequences and emphasize the importance of evaluating the regional versus pan-European nature of a merger. These results contribute to the debate on the revision of current merger principles as they shed light on ways to improve actual practices. JEL Classification: L40, L41, L13, L62, C81.