In March 2011, the UK competition authorities published a Joint Paper on merger assessment in the retail sector. The Joint Paper describes an approach to unilateral effects analysis that uses diversion ratios and margin data to compute an Illustrative Price Rise ('IPR') for each area of overlap. This approach has been adopted in numerous UK retail sector merger decisions and has also been increasingly influential in reviews of transactions in other sectors.
In this RBB booklet, we consider 10 'FAQs' raised by this approach. Whilst there is clear potential for such techniques to provide insights into competition analysis that go well beyond traditional market share indicators, we highlight why the approach has severe limitations as a phase I screening device, and provides at best an interesting starting point for a proper phase II merger investigation.
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