Economising economic analysis for mergers in smaller markets

Herbert Fung shares his experience on how smaller competition agencies can make best use of their economics expertise. He will be an expert panellist at a roundtable on this subject at the 2020 OECD Global Forum on Competition .


Herbert Fung is the Senior Director (Business and Economics) and Chief Data Officer at the Competition
and Consumer Commission of Singapore.

During my early days at Competition and Consumer Commission of Singepore (CCCS)[1], some twelve years ago, I had an interesting conversation with our former chief economist which I still remember today.

He was involved in the drafting of Singapore’s Competition Act as well as our guidelines. I was curious about the economic rationale behind the various positions adopted in our competition regime, so one day I asked him why we opted for CR3[2] as the measure of market concentration in our merger guidelines[3], instead of the HHI[4] which are used in major jurisdictions such as theUnited States[5] and the European Union[6].

I was, and still am, of the personal view that the HHI is a better measure of market concentration than CR3, and with your indulgence, my reasons are as follows: first, the distribution of market share makes a difference to HHI but not CR3. Consider, for example, two markets A and B, each with four players. The market shares in Market A are 30%, 30%, 30% and 10%, while those in Market B are 40%, 30%, 20% and 10%. Both markets have a CR3 of 90%, but Market B has a higher HHI value (3,000) than Market A (2,800). When market shares are uneven, larger players tend to be more able to exercise market power, and the smaller ones tend to be less competitive. Therefore, a measure that indicates a higher market concentration with uneven market share distribution is preferable.

Second, killer acquisitions can be flagged by the HHI but not CR3. Taking the example of Market B again, whether the smallest player (10%) is acquired by the first (40%), second (30%) or third (20%) player, the increase in CR3 would be the same (10%), but the increase in HHI would be different (800, 600 and 400 respectively). To the extent that an acquisition is more likely to cause concerns when the target is acquired by a bigger player, it is preferable to have a measure that indicates a bigger change in market concentration when the acquirer’s market share is higher.

So what was our former chief economist’s response to my question then? “Herbert, there’s nothing you can’t tell by just looking at the market shares”, he said. True. Without calculating the HHI, we can already tell that Market B is more uneven, and an acquisition of the smaller player by the largest is more likely to be problematic.

This story illustrates what I advocate ‘economising’ economic analysis. Sophisticated economic tools are most helpful when the volume of data is large, as we can economise by drawing a smaller sample of the data to make predictions at high confidence levels through quantitative techniques. Singapore, however, often has cases with few data points, such as 1-2 tenders per year with 2-3 bidders each for the past 10 years. In such cases, conclusions that are more robust can be drawn by observing the population of data directly and closely.

In my video, case examples illustrate how we assess the closeness of rivalry between merging parties by reviewing their win-losses tender by tender, bid by bid. Such granular analysis is often not possible for larger cases in larger jurisdictions, hence the reliance on economic modelling. In smaller jurisdiction such as Singapore, the ‘payoff matrix’ differs, hence our way of economising economic analysis for mergers.

Economic Analysis in Merger Investigation will be the subject of an expert panel, as well as breakout sessions during the 2020 OECD Global Forum for Competition on 9 December 2020.


[1] Competition and Consumer Commission of Singapore, then known as Competition Commission of Singapore

[2] Concentration ratio, i.e. sum of the market shares of the three largest firms in the market

[3] Para 3.6 of the CCCS Guidelines on Merger Procedures 2012 and Para 5.15 of the CCCS Guidelines on the Substantive Assessment of Mergers 2016

[4] Herfindahl-Hirschman Index, sum of squared market shares of all players in the market.

[5] Section 5.3 of the Horizontal Merger Guidelines by the US Department of Justice and Federal Trade Commission, August 19, 2010

[6] Para 19-20 of the Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings


The content of this blog posts reflects the personal views and opinions of the author, and does not represent any position taken by the Competition and Consumer Commission of Singapore.


2020 OECD Global Forum on Competition Blog Series

Blog 1: How can competition law tackle misconduct in digital markets?

Blog 2: Can market studies be a more effective tool for tackling emerging competition issues?

Blog 3: Are digital markets bringing new challenges in abuse of dominance cases?

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