ABSTRACT
While quantitative analysis is essential in the assessment of mergers, qualitative evidence and analysis verifies and completes the results derived from quantitative analysis. Qualitative evidence, including company documents, market surveys and marketing studies, provides quite important insights and adds significant value and accuracy to quantitative evidence. Thus, the two types of analysis should be jointly used for an accurate and coherent assessment of a merger. The chapter will address two methods of empirical analysis that relate to two essential stages in the assessment of a merger.16 One such type of
empirical analysis is used for the assessment of the non-coordinated effects of a merger; the other is used both in the definition of the relevant market and in the assessment of the non-coordinated effects of a merger. These two methods are merger simulation and critical loss analysis respectively. Specifically, merger simulation can predict price increases or decreases for a merger involving firms in the same market, depending on efficiencies and changes in market structure including repositioning and divestitures. Critical loss analysis can be used to accurately define the market, using the “Small but Significant Non-transitory Increase in Price” (“SSNIP”) test, by estimating the percentage of customers that would need to switch in the presence of a 5 to 10 per cent price increase in order to make this price increase unprofitable for the hypothetical monopolist. Merger analysis is an ex ante analysis. Although perhaps complicated, it is also very important to be able to predict the post-merger competitive conditions in the market, as they are determined by the post-merger features of the market such as prices, quantities and innovation. The accurate measurement of the competitive effects of mergers is essential for competition authorities and practitioners alike in their assessment of mergers. In recent years there have been significant developments in the use of empirical economic methods, including merger simulation models, to study the likely competitive effects of mergers. These developments have been shaped by the increased use of unilateral/non-coordinated effects analysis. Both the SIEC and SLC tests focus on post-merger price increases, a fact that makes them more accurate for merger assessment than the dominance test.17
