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Entry and exit event analysis probative of competitive effects in mergers
Paul Johnson, PhD, Principal at Bates White LLC, presents a new approach to competitive effects analysis in connection with mergers in “Entry and Exit Event Analysis.” This paper is published as a chapter in Issues in Competition Law and Policy, a three-volume collection written by prominent antitrust attorneys and economists and published by the ABA Section of Antitrust Law.
Entry and exit event analysis involves estimating and interpreting how incumbents respond to the nearby entry and exit of competitors. This type of analysis figured prominently in several high-profile mergers including Staples and Whole Foods. Dr. Johnson argues that this approach can be probative of a merger’s competitive effects because it reveals whether premerger pricing is competitive and whether the elimination of one competitive constraint through merger is likely to change competitive outcomes. This interpretation contrasts with others that use entry and exit event analysis to simulate postmerger prices by equating the effects of exit with merger. Dr. Johnson argues that such simulation generally leads to biased predictions about postmerger prices.
Dr. Johnson’s paper grew out of Bates White’s use of entry and exit event analysis in its examination of the competitive effects of The Great Atlantic & Pacific Tea Company’s recent $1.4 billion acquisition of Pathmark Stores. The parties entered into a consent order with the FTC that called for the divestiture of six of Pathmark’s 141 stores. Industry analysts had anticipated a much larger divestiture package of up to 30 stores.