The John M. Olin Center

Paper Abstract

Untitled Document

46. Sonia Jaffe & E. Glen Weyl, The First-Order Approach to Merger Analysis, 09/2012.

Abstract: Using information local to the pre-merger equilibrium, we derive approximations of the expected changes in prices and welfare generated by a merger. We extend the pricing pressure approach of recent work to allow for non-Bertrand conduct, adjusting the diversion ratio and incorporating the change in anticipated accommodation. To convert pricing pressures into quantitative estimates of price changes, we multiply them by the merger pass-through matrix, which (under conditions we specify) is approximated by the pre-merger rate at which cost increases are passed through to prices. Weighting the price changes by quantities gives the change in consumer surplus.