4 January 2004

The Emperor’s New Clothes? – the role of merger simulation models

The Commission’s new Notice on Horizontal Mergers highlights the importance of unilateral effects analysis in evaluating mergers in differentiated product markets. In industries where the products supplied by firms are differentiated, market shares can either over- or understate the significance of the competitive constraint that each party poses on the other, and a more sophisticated analysis is needed. Reflecting that need, there has been a recent upsurge in interest in the potential role of merger simulation models in EC merger control. Proponents of these models often claim that they result in a robust prediction of the ultimate impact of differentiated product mergers – that they allow the analysis to go “straight to the answer”, rather than becoming distracted by unproductive debates on market definition and purely structural factors.

This Brief takes a critical look at simulation models. Can they deliver on such promises? Or is their contribution a more limited addition to the range of analytical techniques that can usefully be applied in merger assessment?

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