Quantitative Analysis of Coordinated Eects

Abstract

Mergers can aect the extent, probability, and payos of coordinated in- teraction among …rms in an industry. Current analyses of coordinated eects typically provide little quanti…cation of these eects and instead typically rely on arguments based on the number of …rms, Her…ndahl Index, ability to detect and punish deviations, ease of entry, and maverick …rms. We oer an approach for quantifying the magnitude of the potential post-merger gains from incre- mental explicit collusion by subsets of …rms in the post-merger industry. If the incremental payos to post-merger collusion are small (large), then coor- dinated eects are less (more) of a concern. Our approach also allows one to identify which post-merger cartels create the greatest concern and to quantify the eects of post-merger collusion on consumer surplus. The approach can incorporate divestitures and the evaluation of entry, should it occur, as well as quality improvements and cost savings resulting from the merger. We illustrate the implementation and value of this approach with applications to Arch Coal and Hospital Corporation.