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Coordinated Effects Ken Heyer Economics Director Antitrust Division Note: The views and analysis expressed here are personal and do not necessarily reflect the views and policies of the United States Department of Justice. UNITED STATES DEPARTMENT OF JUSTICE ANTITRUST DIVISION Coordinated vs. Unilateral Competitive Effects Analysis a. It isn’t necessarily one or the other b. Even in a given investigation, the theories needn’t be mutually exclusive The Shifting Fortunes of Coordinated Effects Analysis • Why did Unilateral effects become so attractive? • Why did Unilateral effects become so unattractive? • The return of Coordinated effects Coordinated Effects: Moving Beyond the Laundry List* • Market concentrated on the selling side • No fringe of small sellers • Inelastic demand at competitive price • Entry takes a long time • Buying side of market unconcentrated • Standard product • Nondurable product • The principal firms sell at the same level in the chain of distribution • Price competition more important than other forms of competition • High ratio of fixed to variable costs • Similar cost structures and production processes • Demand static or declining over time • Prices can be changed quickly • Sealed bidding • Market is local • Cooperative practices • The industry’s antitrust“record” *Source: Richard Posner, Antitrust Law Mergers and Coordinated Effects No Effect Harmful Effect Beneficial Effect • Pre-Merger coordination and Post-Merger coordination the same • Pre-Merger coordination made more perfect, more complete, or more durable • Market “tips” from no coordination to some coordination • Pre-Merger coordination made less perfect, less complete, or less durable • Market “tips” from some coordination to no coordination a. No coordination before. None after. b. Some coordination before. The same amount of coordination after. The Hypothetical Case of Cablestock Some market basics: • At Least a Half Dozen Active Competitors • Homogeneous Product • Relatively Low Current Margins • HHI Only a Little Above 2000 • Change in HHI Less Than 500 However… • Entry unlikely, efficiency claims weak. • Most firms seem to be operating near capacity • The to-be-acquired firm has lots of available capacity and only a modest market share Theory of Harm • Pre-merger, three firms would need to collude for there to be a SSNIP • Post-merger only two needed • Maverick firm eliminated • Still, could/would the remaining two collude… Lessons • Not everyone needs to collude to effect a SSNIP • Maverick evidence—can be “merely” structural • Still need to prove cartel likely with only a small number—the usual judgment calls re: agreeing, monitoring, punishing Coordinated Effects: Greater Need For “Judgment” than with Unilateral Effects Cases? • In both cases, consider the costs and benefits of making “wrong” decisions