The Deterrence Effects of US Merger Policy Instruments

We estimate the deterrence effects of US merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the US Department of Justice and Federal Trade Commission allow industry-based measures over the 1986-99 period of the conditional probabilities for eliciting investigations, challenges, prohibitions, court wins, and court losses: Deterrence variables akin to the traditional conditional probabilities from the economics of crime literature. We find the challenge rate to robustly deter future horizontal (both relative and absolute) merger activity, and the court-loss rate to moderately affect absolute levels of horizontal-merger activity; however, the investigation rate, prohibition rate, and court-win rate do not significantly deter future horizontal mergers. Accordingly, the conditional probability of eliciting an antitrust challenge (i.e. remedies and prohibitions) is unique among the different merger policy instruments as it yields a robust deterrence effect.