Market Concentration, Multi-Market Participation and Antitrust

Date06 April 2007
DOIhttps://doi.org/10.1016/S0193-5895(06)22008-6
Pages233-257
Published date06 April 2007
AuthorDennis L. Weisman
MARKET CONCENTRATION,
MULTI-MARKET PARTICIPATION
AND ANTITRUST
Dennis L. Weisman
ABSTRACT
This article explores the trade-offs between market concentration and
multi-market participation in evaluating proposed mergers. For comple-
mentary demands, the price-decreasing effect of multi-market participa-
tion provides a countervailing influence on the price-increasing effect of
higher concentration. The larger the footprint of the multi-market pro-
vider, the greater the likelihood the price-decreasing effect dominates.
Higher concentration may be consistent with non-increasing prices despite
the absence of merger economies. In the case of substitutes, multi-market
participation compounds the price-increasing effect of higher concentra-
tion. Merger guidelines that place undue emphasis on market concentra-
tion can lead policymakers to block mergers that enhance consumer
welfare and vice versa.
1. INTRODUCTION
The horizontal merger guidelines (HMG) of the Department of Justice
(DOJ) and the Federal Trade Commission (FTC) continue to place
Research in Law and Economics, Volume 22, 233–257
Copyright r2007 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(06)22008-6
233
considerable weight on market concentration and do not recognize demand
complementarities as a prospective countervailing influence. An emphasis
on market concentration may be appropriate for evaluating mergers that do
not involve multi-market participation. By contrast, for mergers that trans-
form single-market providers (SMPs) into multi-market providers (MMPs),
such an emphasis can lead policymakers to block mergers that actually
enhance consumer welfare and vice versa. The potential for error is likely
greatest in network industries, including telecommunications and transpor-
tation.
1
The defining characteristic of these industries is that of demand
complementarities. That is, increased traffic flows in one direction on the
network generate increased traffic flows in the reverse direction and also
between other nodes on the network as illustrated in Fig. 1.
The fundamental question that we examine in this analysis concerns the
reliability of market concentration (respectively, changes in market concen-
tration) as an indicator of market power (respectively, changes in market
power). We show that mergers that increase the market share and the
‘‘footprint’’ of MMPs can combine with demand complementarities to exert
greater pricing discipline despite higher levels of market concentration.
2
It is
well known, of course, that higher concentration may benefit consumers if it
results in merger economies, a supply-side effect. It is also well known that a
C
A
D
B
Fig. 1. Network Traffic Flows.
DENNIS L. WEISMAN234

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