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Economics at the FTC: Quantitative Analyses of Two Chemical Manufacturing Mergers


Economists at the Federal Trade Commission support the agency’s competition and consumer protection missions in numerous ways. In this article, we discuss the economic analyses that were conducted in connection with two Commission antitrust investigations: The first involved a merger of manufacturers of titanium dioxide, which is an intermediate good used in the manufacture of paints, plastics, and other final goods. This article highlights the analysis that the FTC economists performed relating to techniques used to define the relevant product market as well as to analyze the impact of the merger with a Cournot model. The second investigation also involved a merger of manufacturers of an intermediate product—polyethylene terephthalate resin—which is a plastic that is used to manufacture bottles and food packaging. We highlight here the consideration that FTC economists gave to an argument that one of the manufacturers was a failing firm—which, if true, may imply that the merger would not reduce competition relative to the counterfactual in which one firm would exit the market.

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  1. See FTC Annual Highlights 2018, Stats and Data at, last visited July 24, 2019.

  2. See, last visited July 24, 2019.

  3. See, last visited July 24, 2019.

  4. The conference website is located at, last visited July 24, 2019.

  5. Details are available at:, last visited July 24, 2019.

  6. For details, see, last visited July 24, 2019.

  7. Rutile TiO2 is used to whiten or opacinate paints, plastics, and other final goods. It can be produced by interacting titanium feedstocks with either sulfuric acid or chlorine. Within the industry, these approaches are known as the chloride process and the sulfate process, respectively. In general, TiO2 produced via the chloride process tends to be brighter, more durable, and bluer in hue than sulfate process TiO2. See discussion in McFadden Opinion, page 3. Available at, last visited July 24, 2019. The FTC has previously analyzed the titanium dioxide market. In 1980, the Commission concluded that DuPont was not guilty of illegally dominating the industry (Dobson et al. 1994). The industry was separately the subject of several academic studies (Ghemawat, 1984; Hall, 1990; Schumann et al. 1992).

  8. In addition, the complaint raised the possibility that the transaction would increase the likelihood of coordinated action among the remaining competitors. For more details on the connection between the case and coordinated effects theories, see the recap of the Tronox–Cristal litigation by Hill et al. (2019).

  9. For details on the relative performance of market-definition-based predictors, see Loudermilk and Taragin (2019). For details on the importance of market definition in litigation, see some of the citations in footnote 4 of Baker (2007).

  10. Chappell Opinion, pages 13–14. Available at, last visited July 24, 2019.

  11. McFadden Opinion, pages 12–14. See also Chappell Opinion, pages 29–30. For details on critical loss tests, see, inter alia, Katz and Shapiro (2003).

  12. See, for example, Forni (2004). Two non-stationary variables are said to be cointegrated when there exists a linear combination of the two variables that is stationary. This relationship implies that shocks to one variable that cause it to increase or decrease will tend to also affect the other so that the two variables do not drift too far apart. Thus, the relationship involves more of a causal connection than correlation implies.

  13. For example, Hayes et al. (2007).

  14. See, for example, Baker (1987) or Werden and Froeb (1993).

  15. For example, Cheung and Lai (1993) conclude that Johansen tests are biased toward rejecting the null of no cointegration too often in finite samples compared to the asymptotic distribution of the test statistics. Similarly, Toda (1995) found that one needs 300 observations for the test to perform well uniformly over the range of finite sample scenarios that he considers, while Mallory and Lence (2012) showed that cointegration tests are severely affected by negative moving-average errors, which are common in U.S. commodity price series. Using Monte Carlo simulations to study specifically the performance of cointegration in defining antitrust markets, Coe and Krause (2008) concluded that the performance of cointegration analysis of small samples “provide little economically meaningful information to antitrust practitioners.” In particular, their results found “a tendency to over-reject the null hypothesis [of no cointegration] when it is true and only slightly higher rejection rates when the null hypothesis is false, even for the case where T = 2600 [observations]”.

  16. The FRED series used are Crude Oil Prices: West Texas Intermediate—Cushing, Oklahoma (DCOILWTICO) and Propane Prices: Mont Belvieu, Texas (DPROPANEMBTX). We used daily price data for the period between April 30, 2008 and April 30, 2018.

  17. McFadden Opinion, page 15; Chappell opinion, page 21.

  18. This reduction in quantity by merging firms incentivizes non-merging firms to increase their quantity as a new equilibrium is reached. Under standard assumptions on demand, the total effect of the merging firms’ reduction in quantity and the non-merging firms’ increase in quantity is to raise prices. See Farrell and Shapiro (1990) for a general treatment of mergers of Cournot oligopolists.

  19. See Crooke et al. (1999) for a discussion of the relationship between the form of demand and simulated merger price effects.

  20. Magnitude—whether a merger to monopoly would result in a SSNIP—matters for market definition. But once the relevant market has been delineated, the direction of the welfare change gains in prominence.

  21. CMCR is developed for differentiated products in Werden (1996) and for homogenous products in Froeb and Werden (1998). The FTC applied the latter model in the Tronox–Cristal litigation.

  22. Market shares, of course, depend on which firms are included and excluded from the market, and thus a market definition exercise is also a necessary input into a CMCR calculation. An additional advantage of CMCR over merger simulation is that the latter requires inputs related to non-merging firms, including, at a minimum, market shares.

  23. Specifically, \(CMCR = \frac{{2s_{1} s_{2}}}{{\left({s_{1} + s_{2}} \right) - \epsilon(s_{1}^{2} + s_{2}^{2})}}\), where \(s_{i}\) is firm \(i\)’s market share, and \(\epsilon\) is the market elasticity of demand.

  24. See, for example, Fisher and McGowan (1983), arguing that “accounting rates of return, even if properly measured, provide almost no information about economic rates of return.”

  25. Salant et al. (1983)— which prompted a large literature on the profitability of mergers—was among the first to conclude that Cournot mergers often appear to be unprofitable. Perry and Porter (1985) showed that a refinement to Salant et al. that allows both firms to continue to exist as separate entities post-merger makes mergers relatively more profitable. Farrell and Shapiro (1990) assume that only mergers that increase variable profits would occur endogenously.

  26. Fixed cost savings are not typically measured in merger review, as they are irrelevant to consumer welfare. See Wilson et al. (2019) for a discussion of measuring fixed costs under a total welfare standard.

  27. McFadden Opinion, p. 34.

  28. See the FTC Complaint, December 21, 2018, in the Matter of Corpus Christi Polymers LLC, a limited liability company; Alfa, S.A.B. de C.V., a corporation; Indorama Ventures Plc, a corporation; Aloke Lohia and Suchitra Lohia, natural persons; and Far Eastern New Century Corporation, a corporation,, last visited July 24, 2019.

  29. See Katherine Blunt, "Complex bankruptcy leaves potential of plastics plant unmet", Houston Chronicle, July 12, 2018.

  30. See FTC Analysis of Agreement Containing Consent Order to Aid Public Comment, December 21, 2018, in the Matter of Corpus Christi Polymers LLC, a limited liability company; Alfa, S.A.B. de C.V., a corporation; Indorama Ventures Plc, a corporation; Aloke Lohia and Suchitra Lohia, natural persons; and Far Eastern New Century Corporation, a corporation,, last visited July 24, 2019.

  31. See Order Approving Stipulation Regarding Settlement and Agreement with Respect to Sale of Corpus Christi Assets and Related Matters, In re M&G USA Corp., Case No. 17-12307 (Bankr. D. Del. Mar. 29, 2018).

  32. See the FTC Complaint, December 21, 2018, in the Matter of Corpus Christi Polymers LLC, a limited liability company; Alfa, S.A.B. de C.V., a corporation; Indorama Ventures Plc, a corporation; Aloke Lohia and Suchitra Lohia, natural persons; and Far Eastern New Century Corporation, a corporation,, last visited July 24, 2019.

  33. Before the bankruptcy court auction of the Corpus Christie plant, M&G’s PET plant in Apple Grove, WV, was sold to FENC. Since prior to this sale FENC owned no plants in North America, there was no antitrust concerns with that purchase in isolation.

  34. We assumed that joint-venture partners would have access to equal shares of the capacity.

  35. Werden (1991) shows this result.

  36. A number of scholars have studied this special case of the Cournot model with linear demand and quadratic costs. The cost function is the dual of the Cobb–Douglas production function \(Q = \sqrt {LK}\) (there is technically no restriction on K’s exponent as capital is fixed and fixed costs are not part of the merger simulation model). Perry and Porter (1985) use it to show that there is much greater scope for profitable mergers than is suggested by Salant et al. (1983), who use a Cournot model with constant marginal costs and no capacity constraints. Farrell and Shapiro (1990) and McAfee and Williams (1992) also use the linear demand quadratic cost Cournot model to study the welfare effects of horizontal mergers. Finally, Werden and Froeb (2008) discuss the model as it relates to merger simulation.

  37. This approximation ignores the lost sales from the reduction in quantity when price increases.

  38. See FTC Agreement Containing Consent Order, December 21, 2018, in the Matter of Corpus Christi Polymers LLC, a limited liability company; Alfa, S.A.B. de C.V., a corporation; Indorama Ventures Plc, a corporation; Aloke Lohia and Suchitra Lohia, natural persons; and Far Eastern New Century Corporation, a corporation,, last visited July 24, 2019.


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We thank Dave Schmidt and Mike Vita for helpful comments. The views that are expressed in this article are those of the authors and do not necessarily reflect those of the Federal Trade Commission or any of the individual Commissioners.

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Correspondence to Jeremy Sandford.

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Greenfield, D., Kobayashi, B., Sandford, J. et al. Economics at the FTC: Quantitative Analyses of Two Chemical Manufacturing Mergers. Rev Ind Organ 55, 607–623 (2019).

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  • Antitrust
  • Failing firm
  • FTC
  • Market definition
  • Mergers