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Unilateral effects of mergers with price regulation and quality competition

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  • Souillard, Baptiste

Abstract

Merger screening tools are increasingly used in the review of horizontal mergers. They offer insights into the firms’ incentives to increase prices post-transaction. This paper proposes a new indicator, the Quality Reduction Incentive (QRI) index, that can be applied when competition is based on quality rather than prices, as in some healthcare and higher education markets. It represents the minimum percentage reduction in marginal costs necessary to eliminate the merging firms’ incentives to lower quality. Therefore, it can be directly compared to the cost efficiency gains claimed by the parties. Two versions of the QRI index are provided. The first one ignores the feedback effects between the parties, while the second one, more comprehensive, incorporates these interactions. The paper then explains how antitrust authorities can apply this tool with relatively little data.

Suggested Citation

  • Souillard, Baptiste, 2024. "Unilateral effects of mergers with price regulation and quality competition," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003690
    DOI: 10.1016/j.econlet.2024.111885
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    Keywords

    Unilateral effects; Mergers; Antitrust; Competition; Non-price effects; Quality;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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