Empirical Analysis of the Assessment of Innovation Effects in U.S. Merger Cases


In merger policy it is still an open question how the negative effects of mergers on innovation should be assessed. In this empirical study all mergers that were challenged by the U.S. antitrust agencies FTC and DOJ between 1995 and 2008 were analyzed in regard to the question to what extent and how the agencies assessed the innovation effects of mergers. The study also contributes to the discussion about differences and convergence in the merger assessments of the two agencies FTC and DOJ. Our results show (1) that in one third of all challenged mergers also innovation concerns have been raised (with no significant differences between the agencies). (2) Despite the wide-spread rejection of the “innovation market approach” in the antitrust debate the agencies used more often an innovation-specific assessment approach that includes also innovation in the market definition than the traditional product market concept. (3) Overall, we found both significant similarities and differences as well as some convergence over time in regard to the specifics of the assessment of innovation effects of mergers between both agencies.

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  1. 1.

    See for a critical discussion, e.g., Rapp (1995), Lang (1997), Morse (2001), Carlton and Gertner (2003), Davis (2003), Kent (2011); see for a more balanced perspective Katz and Shelanski (2007, 41–44), Carrier (2008), and Kern (2014).

  2. 2.

    The respective public comments and records of the FTC/DOJ joint workshops can be found on: http://www.ftc.gov/news-events/events-calendar/2010/01/horizontal-merger-guidelines-review-project-0 (Aug. 14, 2014).

  3. 3.

    See the “Annual Competition Enforcement Reports to Congress” of the agencies between the fiscal year 1995 and fiscal year 2008.

  4. 4.

    See, e.g., Davis (2003), Morse (2001), Rubinfeld and Hoven (2001), Landman (1999), Katz and Shelanski (2007), Carrier (2008), Kern (2014).

  5. 5.

    Whereas this paper presents the econometric results of our study, a broader discussion of these (and additional) results within the context of the theoretical and empirical knowledge about innovation effects of mergers and the recent discussion in U.S. antitrust policy can be found in Kerber and Kern (2014).

  6. 6.

    See for the general discussion about dual antitrust enforcement and differences and convergence between both agencies Sokol (2010), Blumenthal (2013), and Barroso Gomes (2013). However the (in the literature) most discussed differences about remedies and the tests for preliminary injunctions between FTC and DOJ do not seem to play a direct role for the research question in our study about the assessment of innovation effects. See for this specific discussion Sokol (2010, 1076), Chubb (2011), and Strock (2012).

  7. 7.

    See also Kovacic (2009) and as an overview about this discussion Sokol (2010, 1109–1118).

  8. 8.

    See Sokol (2010) and First et al. (2012).

  9. 9.

    Although we also analyzed the consent decrees in these mergers (e.g., in regard to remedies), the specific data we needed for this empirical study (market definition, concentration measures etc.) could only be gotten in a consistent way from the complaints of both agencies FTC and DOJ. We are aware that the phrasing of the complaints might not always indicate very well to what extent and how innovation was really assessed by the agencies, however it can be claimed that systematic differences in the phrasing of these (highly standardized) official documents reflect specific differences in the assessment approaches (and are not accidental). In our analysis of the differences between both agencies we will consider that the merger proceedings of FTC and DOJ differ, and therefore also the role of the complaints.

  10. 10.

    Please note that we do not call these markets innovation markets, because they need not be identical with how the innovation market approach would define innovation markets.

  11. 11.

    The decisive court decision Whole Foods in 2008 that is seen as leading to substantial differences between FTC and DOJ in regard to preliminary injunctions could not have influenced the merger reviews in our investigation period (1995–2008).

  12. 12.

    According to the 2-digit ISIC/NACE, HITEC 0 encompasses “construction” (45), “sale, maintenance and repair of motor vehicles” (50), “retail trade, except of motor vehicles” (52), “hotels and restaurants” (55), “real estate activities” (70), “renting of machinery and equipment” (71), “public administration and defense” (75), “Education” (80), “health and social work” (85), “sewage and refuse disposal, sanitation and similar activities” (90), “activities of membership organizations n.e.c.” (91), “recreational, cultural and sporting activities” (92), “other service activities” (93), “private households with employed persons” (95), “extra-territorial organizations and bodies” (99).

  13. 13.

    Thereby we avoided possible biases as a consequence of the usage of, e.g., firm primary codes and safeguarded that we assign each merger case the appropriate industry classification number (on a 4-digit level) from an antitrust perspective.

  14. 14.

    As our left hand side variable INNOV_CASE is binary the application of OLS yields inefficient estimates. We therefore used probit models for all our regressions. We also used logit techniques and linear probability models in order to check for robustness. Overall, the results did not change qualitatively throughout the analysis in dependence of the respective method used.

  15. 15.

    For a detailed overview see http://www.ftc.gov/enforcement/cases-proceedings (Aug. 14, 2014).

  16. 16.

    See, e.g., The Boeing Company, File No. 001 0092, Docket No. C-3992.

  17. 17.

    See, e.g., Svedala Industri AB/Metso Oyj Corp., FTC File No. 001-0186, Docket No. C-4024.

  18. 18.

    In contrast to our analysis on the case level, carried out in the previous section, we were now able to use the R&D expenditures as a control variable for the innovativeness of an industry instead of the HITEC variables. Due to a significant number of transactions taking place in hardly innovative industries, we had the problem of missing data regarding the R&D expenditures on the case level.

  19. 19.

    Again, we used the ISIC scheme on a 2-digit level and matched the corresponding relevant markets with the “STAN Indicators 2009” dataset of the OECD.

  20. 20.

    It is worth noting that we also empirically tested our descriptive observations regarding the use of HHIs and market shares as traditional concentration measures and the use of non-quantitative concentration measures. However, we did not get any significant results with respect to the use of HHIs and market shares. But, we confirmed our descriptive results regarding the use of non-quantitative/vague concentration measures. The observation that the FTC uses this kind of concentration measure more often and that its use decreases from the first to the second period could both be confirmed at a 1 % significance level.

  21. 21.

    See Arrow (1962), Loury (1979), Lee and Wilde (1980), Dasgupta and Stiglitz (1980), Reinganum (1989), Boone (2000, 2001), Aghion et al. (2005).

  22. 22.

    See for evolutionary and diversity reasonings Metcalfe (1989), Nelson (1995), Farrell (2006), and Kerber (2011) with additional references.

  23. 23.

    Ciba-Geigy Ltd., 123 F.T.C. 842, at 851 (1997).

  24. 24.

    See, e.g., United States v. Halliburton Co., Civ. No. 98-2340 (D.D.C. complaint filed Sept. 29. 1998).

  25. 25.

    See, e.g., The Upjohn, Co., 121F.T.C. 44 (1996); Glaxo plc, 119F.T.C. 815(1995); Ciba-Geigy Ltd., 123F.T.C. 842, at 851 (1997); Hoechst AG/Rhone-Poulenc S.A., Docket No. C-3919 (consent order issued January 18, 2000).

  26. 26.

    See, e.g., United States v. Lockheed Martin Corp., Civ. No. 98-00731 (D.D.C. complaint filed March 23, 1998).

  27. 27.

    Note that we also empirically tested for markets with vague reasonings. However, in these regressions we did not obtain any significant results. Hence, although the descriptive observations have suggested that the DOJ made less unspecific arguments than the FTC and that the share of vague claims of negative innovation effects is furthermore slightly falling in the second period, we did not find econometric evidence for these descriptive results.

  28. 28.

    Note that we also tested for a possible interaction between the FTC and the D04-08 variables. However, the interaction term FTC*D04-08 was omitted due to collinearity.

  29. 29.

    See also the empirical study of Park and Sonenshine (2012) from a slightly different perspective.

  30. 30.

    Kovacic (2009).


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For valuable comments and suggestions we thank two anonymous reviewers and the discussants and participants of the 31st Annual Conference of the European Association of Law and Economics (EALE) (Sept. 18–20, 2014, Aix-en-Provence) and the Fourth MaCCI Annual Conference (March 12–13, 2015, Mannheim).

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Correspondence to Wolfgang Kerber.



Table 10 The sectoral taxonomies
Table 11 Variables description
Table 12 Marginal effects of Table 2
Table 13 Marginal effects of Table 4
Table 14 Marginal effects of Table 6
Table 15 Marginal effects of Table 8
Table 16 Marginal effects of Table 9

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Kern, B.R., Dewenter, R. & Kerber, W. Empirical Analysis of the Assessment of Innovation Effects in U.S. Merger Cases. J Ind Compet Trade 16, 373–402 (2016). https://doi.org/10.1007/s10842-016-0225-0

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  • Innovation
  • Merger policy
  • US antitrust
  • Innovation markets
  • JEL Classification
  • K21
  • L12
  • L41
  • O31