On the value of counterfactual assessments in merger cases

  • A. Al-Ameen Cardiff University, United Kingdom

Abstract

The cost of erroneous decisions in merger cases could be huge. However, authorities cannot eradicate potential errors due to the ex-ante nature of merger control. Nevertheless, to minimise
errors, stakeholders have formulated predictive techniques to aid assessments. One of the key means of engineering these techniques is through the use of counterfactuals. The problem, though, is that the status and value of such counterfactual assessments are far from clear. The lack of clarity has thus occasionally raised doubts about the nature, value, scope, and limitations of counterfactual assessments. The results may sound ‘scientific’, yet they are not. On the flip side, the process may appear overly elaborate, yet the result may be the best logical answer available. In light of the foregoing and in order to address all the different implications for mergers, this article explores the value of the counterfactual in providing relative accuracy. It gives a holistic account of the role of the counterfactual right from the point of market definition up until the stage of ex-post-evaluation. Specifically, it explains the role of the counterfactual in ascertaining the substitutability of products through the use of the hypothetical monopolist test. Further, it details the importance of the counterfactual in the assessment of market power. The article thereafter assesses the importance of ascertaining the right basis for the counterfactual. This is followed by the summary of the importance and consequence of the counterfactual assessment. The article also addresses the importance of the counterfactuals in efficiency analysis, failing firm defence and remedies.

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Published
2018-04-04
Section
Articles / Artikels