Assessing Innovation Effects in US Merger Policy: Theory, Practice, Recent Discussions, and Perspectives

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Assessing Innovation Effects in US Merger Policy: Theory, Practice, Recent Discussions, and Perspectives

By Wolfgang Kerber & Benjamin René Kern (Philipps University Marburg)

Abstract:     Despite a broad consensus about the importance of also considering innovation effects of mergers (in addition to the usual price effects), it is still very unclear to what extent and how innovation effects of mergers should be assessed. In this paper, the results of the first comprehensive (quantitative) empirical study on how the US antitrust authorities DoJ and FTC assessed mergers in regard to their innovation effects from 1995 to 2008 are presented. We could find 135 challenged mergers with overall 323 relevant markets, in which the authorities had also innovation concerns. Whereas in Kern/Dewenter/Kerber (2014) we have focused much more narrowly on the econometric results, this paper (in section 3) presents all our results (in a non-technical way) and analyzes them in the broad context of the theoretical discussion about innovation effects of mergers (section 2) and the recent discussion on how to deal with innovation effects in regard to the reform of the US Horizontal Merger Guidelines (chapter 4). In our empirical study, we are mainly interested in the question to what extent the agencies have assessed innovation effects within the traditional product market concept or by using a more innovation-specific approach which would consider research and development already in the market definition (along basic ideas of the innovation market analysis). Important results of our study are: In more than a third of all challenged mergers also innovation concerns were raised – with no differences between the agencies and over time. However, the agencies used rather different assessment approaches, the DoJ more the traditional product market concept and the FTC more an innovation-specific approach; however, overall an innovation-specific approach was used more often. We also analyzed the cases for the applied concentration measures and levels, barriers to entry, the reasonings of the agencies, simultaneity of static price effects claims, and remedies. Our overall results are very ambivalent: The agencies have assessed innovation effects and this often also in an innovation-specific way, but they did not succeed to develop a clear and consistent approach and seemed to have gotten more cautious over time. In chapter 4, these results are confronted with the recent US antitrust discussion about the reform of the US Horizontal Merger Guidelines. Both this discussion as well as the new Guidelines shows a clear reluctance of adopting a more innovation-specific approach (by sticking clearly to the product market approach) which is at odds with the practice of the agencies until 2008. This disappointing result leads the authors to develop some ideas for new research perspectives on this issue.

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