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
The Determination of Newspaper Slant in Small Markets
By Jordyn Gracey
This paper takes the assertion, made by Gentzkow et al., that newspaper slant is primarily determined by slant as given. Both that paper and this one use Hotelling as a foundation. However, this paper considers what happens when the distribution of ideological preferences differs at national and county levels. This paper controls for the size of the market in which the newspapers are operating as well as for the make-‐up of the county-‐level population. Findings show that demand is a robust determinant of slant across market sizes and that supply-‐side factors rarely have significant impact on slant. In the two cases where ownership does have an effect on slant, it is in regressions where the largest-‐circulating newspapers have been dropped. We determine that if ownership is important it is when control is more centralized,if a newspaper is operating in a small market or if the owner chooses the slant before deciding which market to enter.
Advisor: Michelle Connolly | JEL Codes: L2, L21, L4, L22, L25, L44, Y8 | Tagged: Firm Behavior, Conglomerates, Product Strategy
