Alarm probabilities of simple tests of merger control: An analytic derivation

Abstract

For ten simple horizontal merger tests, I analytically derive the probability of blocking a merger. The assumptions are the symmetry of diversion ratios, price-cost margins, and efficiency gains, and the uniform joint distribution of these variables. The robustness analyses suggest that the limitations arising from the simplifying assumptions are only moderate. Based on these results, I provide an easy-to-use Excel calculator (without VBA macro), with which the probabilities associated with any product market and price increase threshold can be quickly calculated. Additionally, I propose a paired testing protocol for unknown demand systems by linking linear- and isoelastic-demand indicators through the threshold or the alarm probability.

Keywords

• horizontal merger control
• price-effect indicator
• upp
• guppi
• cmcr
• alarm probability
• excel calculator
• paired testing protocol