Unilateral Competitive Effects of Mergers Between Firms with High Profit Margins

01 December 2010
By Dr. Elizabeth M. Bailey and Dr. Lawrence Wu with former NERA economist Greg Leonard

While the 1992 Horizontal Merger Guidelines mention profit margins only once, the revised 2010 Guidelines have brought gross profit margins (i.e., the percentage margin of price over marginal or incremental cost) to the center of attention in merger review. This new emphasis raises the important question of what inferences may be drawn about the competitive effects of a merger from information about the merging parties' profit margins. This article from Antitrust focuses on high margins in the context of unilateral effects analysis. The authors provide guidance to antitrust practitioners who, when faced with a merger between firms that have high profit margins, must evaluate the antitrust risk associated with the merger or analyze the merger's competitive effects.

This article was published in Antitrust, Vol. 25, No. 1, Fall 2010, and is reproduced here with permission from the American Bar Association.