Evaluating Mergers for Antitrust Issues: The Allied Waste and Republic Services Case.
- Horizontal mergers of actual or potential competitors often raise antitrust concerns. The approach of antitrust enforcement authorities related to such mergers focuses on how the post-merger market will differ from the pre-merger market. Economists have increasingly addressed this question using merger simulation models. These simulations use empirical estimates of key demand and supply parameters... read more, as well as formal economic models of imperfect competition to predict the post-merger market. With these methods, one can analyze quantitatively how a given merger is likely to affect consumers and producers. With the use of a formal model, one can examine how the predictions for the post-merger market vary when key input parameters or behavioral assumptions are changed, providing insight into the robustness of the results. This paper uses merger simulation models to evaluate the recent merger of two of the three largest firms in the U.S. waste disposal industry, Allied Waste and Republic Services. The findings indicate that the merger is likely to be profitable but will lead to a consumer welfare loss if the merged firm???s cost savings are about 5% percent or less. However, if cost savings are larger, the simulation results indicate that the merger will increase total surplus, and for cost-savings rates above 12.3%, the industry price will decrease and consumer surplus will rise consistently.read less