Jill Walker shares her views on economic analysis in merger investigations, emphasising the broad role economists can play.
Merger review is one of the central pillars of most competition regimes around the world and the economic analysis of mergers is central to the review process. It is also unique in competition law because it is generally forward looking, seeking to prevent anti-competitive consequences from mergers, rather than remedying conduct that has already occurred. However, this forward looking nature of merger review also makes it inherently uncertain, which presents analytical challenges and requires judgements to be made.
The number of economists employed by competition agencies and the role of economics in merger review has been increasing, but because merger review is economics practiced in a legal setting, it is critical that economists and lawyers can communicate with each other and work together effectively. Economics provides the theoretical framework and tools of analysis with which to assess a proposed merger, while the legal regime provides the anti-competitive threshold and rules of evidence against which the potential effects of a merger must be assessed.
Economists are often associated with quantitative analysis, but they can and should play a much broader role than that. Merger review is like a three legged stool: it requires data, documents and witnesses in order for it to stand solidly. Economists can provide valuable input to the assessment of all three legs.
Quantitative analysis is important and the range of tools available is vast, from descriptive statistics to merger simulation and anything in between. Descriptive statistics are often an important starting point and in many cases can, along with some key qualitative information, allow a merger to be quickly cleared. In other cases, descriptive statistics can provide a valuable starting point which suggest other lines of inquiry and analysis. Before progressing to more advanced quantitative techniques it is generally necessary to know something about how the market operates and what data is available. Consider what is possible with the data and resources available to you and what would be useful to progress the analysis? Just because something is possible does not necessarily mean it will be useful. While quantitative analysis is important and can help to prevent loose thinking, it will never provide “the answer”. There will be too many assumptions and uncertainties.
Quantitative analysis will always need to be complemented by qualitative analysis of documents and witness evidence. The quantitative and qualitative analysis should be consistent and if they are not this needs to be understood and explained. Nor does the role of economics stop once the potential competition and efficiency effects of a merger have been analysed.
Economists also have an important role to play in the assessment of proposed remedies, which are increasingly important for resolving mergers. Economics can help in assessing the constraints and incentives that are likely to drive firm conduct post merger in the context of proposed remedies. A poor remedy is equivalent to clearance or worse, so this is an important role.
Finally economics and economists play an important role in ex-post merger review, from which we can all learn.
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. Jill Walker’s background paper provides an overview of the economic framework for merger review, theories of harm and analytical techniques used by economists as well as the use and organisation of economists by competition agencies.
2020 OECD Global Forum on Competition Blog Series