The Role of the Economist/Economics in “Proving” Coordinated Effects

Abstract

Particularly since the issuance of the 1992 Horizontal Merger Guidelines, economists have frequently been called upon in merger reviews to assess “whether the merger is likely to create or enhance market power or to facilitate its exercise.” The Guidelines expressly set out two theories by which mergers may create adverse competitive effects–by increasing a firm’s ability to engage in either unilateral or coordinated interaction –and present in some detail the analytical principles relevant for reviewing potential anti-competitive effects. Economists are also called upon at times to assess whether particular business practices “facilitate” or enhance coordination when used by industry/market participants. A third, but somewhat less frequent role of the economist in assessing coordinated effects arises in litigation over both tacit and explicit collusion, and there has been considerable debate concerning the specific contribution that economists can make in litigation alleging explicit collusion. In each of the above roles, the economist is called upon to set out a credible theory of the competitive dynamics and conditions in the industry and to examine and apply those theories on a principled basis–whether in testimony or in an agency setting–to the pertinent facts. This article addresses these roles and highlights the substantial influence of the 1992 Merger Guidelines in the evolution of the roles of the economist and the economics of “proving” coordinated effects. The application and extension of the coordinated effects analysis set out in the Merger Guidelines to a wide variety of contexts are used here to evaluate the contributions made by economists and economics in the assessment and “proof” of the likelihood of coordinated effects.