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Price pressure analysis and merger simulation: a UK retrospective

Price pressure analysis and merger simulation: a UK retrospective. Chris Walters Chief Economist, OFT LEAR Conference: The Economics of Merger Control, 27 June 2013. Overview. Background. UK merger control. Alphabet soup: ingredients. Is voluntary, not mandatory

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Price pressure analysis and merger simulation: a UK retrospective

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  1. Price pressure analysis and merger simulation: a UK retrospective Chris Walters Chief Economist, OFT LEAR Conference: The Economics of Merger Control, 27 June 2013

  2. Overview

  3. Background UK merger control Alphabet soup: ingredients • Is voluntary, not mandatory • Is administrative, not judicial • Is bicameral, not unitary (for the time being!) • Is well resourced (relatively speaking) • Lacks compulsory information gathering powers at first phase

  4. Market definition is dead! The great majority of OFT first-phase merger decisions still rely on the ‘traditional’ approach

  5. Lots of retail mergers

  6. It’s all too hard! Myth Reality Used by OFT regularly since 2005 The ingredients for alphabet soup are the same as for market definition. But when products are differentiated, markets can look too narrow and price pressure analysis is more sensible. So the focus on margins and diversion is not a consequence of using price pressure analysis, it is the cause of it It uses evidence from internal documents, supply disruptions, market research and econometrics as well as consumer surveys • The analysis is too new • It’s too complicated • It always uses consumer surveys and they’re too expensive

  7. No wait, it’s all too easy! Myth In defence of assumptions • The ingredients may be poorly measured • The analysis requires lots of hidden and unrealistic assumptions • This is no more true of alphabet soup than of other evidence

  8. It’s too interventionist! Myth Reality Analysis is seen in the light of other evidence: “...the evidence on diversion and the GUPPI calculations corroborate this view.” In the UK, it is the parties’ commercial decision to offer divestments at first phase Of the 22 ‘price pressure’ cases above, only 4 were referred—same as OFT’s overall reference rate, 18% In the 10 conditional clearances, the analysis has been exculpatory to the traditional approach in 8 cases and corroborative of it in 2 • The analysis is determinative • By comparison to the traditional market definition and market share approach, it leads to more intervention

  9. Why has merger simulation not delivered on its promise?

  10. Thank you. Any questions? Chris Walters Chief Economist, OFT LEAR Conference: The Economics of Merger Control, 27 June 2013

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