Empirical Evidence Of Setting The Safe Harbor's Threshold Of Horizontal Merger

Safe harbors in mergers and acquisitions guidelines define post-merger marketconcentration or concentration change thresholds below which proposed mergers areunlikely to pose competition concerns. Their role is to screen out competitivelybenign mergers, thereby allowing competition agencies to focus on the morecontentious cases. There are three ways to describe the safe harbor: market share, HHIand market concentration. Yet despite the almost universal adoption of the"substantial lessening of competition" test, agencies use significantly different safeharbors. This may reflect the lack of strong theoretical bases for alternativespecifications. We attempt to fill this gap by using the PCAIDS merger simulationmodel to run many merger simulations involving a wide range of market structuresettings and merger-induced aggregations. There are two ways to solve this problem,the first is traditional regression method. It try to find a "threshold" level ofconcentration which separates groups of industries earning significantly differentprofit rates. I review this method in this paper. Then, I introduce the theory relatedwith the PCAIDS model. I analyse the advantage and disadvantage of AIDS modelwhich is the basic of PCAIDS model. Then I operate the simulation experiment usingthe PCAIDS model. By estimating the post-merger unilateral price increases in eachscenario, such as whether or not involving the largest or the second largest firm; therelationship between HHI and post-merged price; the relationship between HHI-increase and post-merged price and the market share index. I also compare the resultsof the PCAIDS model with other alternative simulation model. We can gauge whatthe safe harbors should be using a5%(or, alternatively, a3%) price increase thresholdof anti-competitiveness. Finally, Our simulation results suggest that the safe harborscommonly based on market HHI, merged entity market share and HHI-increasethresholds are typically too restrictive, in that they fail to screen out mergers that arealmost certain to be competitively benign.