Louis Kaplow, Entry and Merger Analysis (Jan. 12, 2023).
Abstract: This article explores the many ways that entry is relevant to horizontal merger analysis. Only one, however, is part of the current canon, and it is handled incorrectly. The analysis draws on work in industrial organization economics that examines entry in imperfectly competitive markets. Ex post entry—postmerger entry induced by a merger’s anticompetitive effects—is cast in a different light concerning when and how much entry will take place, the welfare effects of such entry when it does occur, and the implications of postmerger entry for understanding what motivates proposed mergers and thus their likely effects. Ex ante entry—entry induced by the prospect of a subsequent acquisition—is brought into the spotlight. This consideration favors more stringent merger policy in some settings and more permissive review in others. Recent attention, especially in Big Tech, to incumbents’ acquisitions of nascent competitors often improperly takes entrants’ presence and capabilities as given. Analysis should also consider how a merger regime influences ex ante incentives that determine the future flow of such competitive opportunities, although this factor need not favor permissive treatment of such mergers.