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Coordinated Interaction and Clayton §7 Enforcement

Mar 2003
Working Paper
02-026
By  Stuart Gurrea, Bruce Owen
When proposed mergers are reviewed by antitrust authorities in the United States they are examined for possible adverse effects on competition and on consumers. Two varieties of adverse results are considered: coordinated interaction and unilateral effects. The first is a possible increase in cooperation among firms attributable to the elimination of a competitor. The second is the incentive to increase price unilaterally that arises when a close competitor is integrated. Recently, enforcement authorities have suggested greater attention to coordinated interaction. This paper reviews the recent history of anti-merger law enforcement and explores the economic basis, chiefly in game theory, for predicting the effects of mergers on coordinated interaction. Economic theory is found to provide weaker support for predicting the effects of mergers on coordinated interaction than for predicting unilateral effects. Recent advances in relevant experimental research are also discussed, and the possible usefulness of a competitive altruism/spite index (CASI) as a summary of a market’s supply-side behavior is explored.