Gregory J. Werden
U.S. Department of Justice – Antitrust Division
Vanderbilt University – Strategy and Business Economics
Vanderbilt University – Department of Mathematics
European Competition Journal, Vol. 1, No. 2, October 2005
In differentiated products industries, the extent of the pass through of merger-specific marginal-cost reductions is determined largely by the curvature of demand and idiosyncratic properties of particular functional forms for demand. Thus, addressing pass through as a separate and distinct component of merger analysis is likely to be unproductive. An alternative approach is to determine whether merger-specific marginal-cost reductions are sufficient to offset entirely the price-increasing effects of a merger. In addition, pass-through rates are closely linked to the price-increasing effects of mergers; demand properties that lead to large price increases from mergers absent cost reductions also lead to high pass-through rates. This implies the existence of simple and practical consistency checks on price increase and pass-through predictions.