How can merger control distinguish a genuine case of merger-enabled innovation from a broad promise of “more scale”, “more data” or “greater capabilities”?
In a recent research project, Founding Partner Kirsten Edwards-Warren, Associate Francisco Espinosa, and Senior Consultant Salvatore Piccolo develop an operational “theory of benefit” framework for assessing claims that a horizontal merger will cause a certain process innovation project and ultimately benefit consumers.
The central idea is that a credible innovation claim requires a clear and verifiable causal chain. The merger must change the parties’ incentive to undertake the proposed investment; the investment must be merger-specific; and the resulting efficiencies must be transmitted into product-level prices.
One framework, three papers
The project consists of three complementary papers. They share the same core methodology and conclusions but present them at different levels of detail and for different purposes.
The academic paper provides the formal economic foundations of the framework. It models how a merger can affect project-level investment incentives and connects the resulting efficiencies to product-level pricing incentives.
The policy paper places the framework within the broader merger-control landscape. It explains how the methodology can help bridge the gap between general legal principles and the case-specific economic evidence needed to substantiate an innovation claim.
The practitioner paper translates the framework into a practical three-step workflow for use in merger cases: assessing the incentive to innovate, establishing merger specificity and evaluating the transmission of any resulting efficiencies to prices.
Together, the three papers are intended to make the same framework accessible to academics, competition authorities, economic advisers, lawyers and other practitioners, allowing readers to engage with it at the level most relevant to their work.
Try the methodology
To make the proposed methodology easier to apply and scrutinise, the authors have also produced a synthetic companion dataset. It presents a hypothetical merger and innovation project and provides the information economists need to work through the proposed test themselves.
The dataset is intended in particular for economists working in competition authorities, consultancies and academia. Readers can use it to calculate the proposed metrics, test alternative assumptions and assess the methodology’s practical usefulness and limitations. The authors hope that members of the competition community will try the framework, stress-test it and share their comments.
Read the full academic paper here.
Read the full policy paper here.
Read the full practitioner paper here.
Download the synthetic companion dataset and try the methodology yourself here.
The views and opinions expressed in this response are those of the authors and do not necessarily reflect the views of Econic Partners or its clients.
