A Comparison of the HHI and the Procurement-Based Framework in Merger Review
by Kenneth Gong
Abstract
The Herfindahl-Hirschman Index (HHI), a measure of market concentration, plays a critical role in the U.S. Merger Guidelines. It is used as a threshold metric that marks certain mergers as potentially harmful to consumers. However, the microfoundations for the HHI are grounded in the Cournot oligopoly model, which may not be an appropriate foundation for certain markets, particularly those in which buyers purchase through competitive procurements. Recent developments in Incomplete Information Industrial Organization (IIIO) allow merger analysis to be tailored to such procurement-based markets. While IIIO methods allow one to calculate the probability of an increase in price (PIP) as a result of a horizontal merger, until now no work has been done to compare the HHI approach to merger review with the IIIO approach. In this paper, we find that the IIIO approach is largely consistent with the 2023 Merger Guidelines in that we agree that both the post-merger HHI and the change in HHI should be used in merger review, however our results place greater emphasis on the change in HHI in terms of predictive power of the PIP.
Professor Leslie Marx, Faculty Advisor
Professor Michelle Connolly, Faculty Advisor
JEL Codes: L4, L41, L44
Beyond the But-For World: Weak-necessity causal reasoning for model-based counterfactuals in law and economics
by Lilia Qian
Abstract
Under current standards for scientific evidence defined under Daubert, antitrust models are frequently excluded from legal consideration, but not always for reasons that make them genuinely unreliable. This paper clarifies why antitrust models face difficulties when subjected to methodological scrutiny: the employment of model-based counterfactual arguments under an epistemically defective ‘but-for’ structure of causation. Assessing the relevance and reliability of an antitrust model is a matter of assessing the validity and applicability of the causal claim it makes, not the degree to which the modeling methodology is considered scientific. A more flexible causal framework, the weak-necessity structure of causation, is suggested as a means of developing and evaluating model-based counterfactuals. This framework allows for modeling of overdetermined-causation situations, or situations in which the outcome of interest can be attributed to two or more causes. Since antitrust cases typically involve overdetermined causation, the weak-necessity framework allows them to be modeled in a more precise and intuitive way.
Professor Kevin Hoover, Faculty Advisor
JEL Codes: B41, K21, L41, L44
Municipal and Cooperative Internet on Broadband Entry and Competition
by Tianjiu Zuo
Abstract
The broadband market is unique for municipal (government-owned) and cooperative (member-owned) competitors. Their participation, however, raises conflict of interest concerns. Both municipalities and cooperatives are often owners of utility poles that are an essential input for broadband deployment. Internet service providers (ISPs) must lease pole attachment space. While most pole attachment rates are regulated, municipal and cooperative pole owners are exempt by Section 224 of the Telecommunications Act. This paper, therefore, studies the competitive effects of municipal and cooperative ISPs, and the effect of potential entry by municipal and cooperative electric utilities (non-ISPs), on broadband entry and quality. I add to the existing literature by building a dataset of municipal and cooperative non-ISP service areas, designing a method to clean the Federal Communications Commission’s (FCC) broadband data, developing a novel geographic entry threat model, and analyzing municipalities and cooperatives in conjunction. I categorize markets into three types: rural, urban clusters (2,500 to 50,000 people), and urbanized areas (≥ 50,000 people). Looking at Illinois from June 2015 to June 2018, I find that the presence of a municipal ISP lowers the probability of market entry and service quality in urbanized areas. The presence of a cooperative ISP lowers the probability of market entry and service quality in rural areas and urban clusters. The presence of a municipal non-ISP has little to no effect on the probability of market entry or service quality. The presence of a cooperative non-ISP appears to increase the probability of market entry in rural and urbanized areas, but depress service quality in urbanized areas, though these effects could be attributed to bad data.
Professor Michelle Connolly, Faculty Advisor
JEL Codes: L32, L41, L96
