Eliciting Informal Processes: The Deterrence Effects of U.S. Merger Policy Instruments

Due to the informal processes via which antitrust policy impacts the strategic actions of firms, it has been challenging to estimate the degree to which merger policy impacts the M&A activity of firms. We overcome these challenges and estimate the deterrence effects of U.S. merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the U.S. DOJ and FTC allow industry based measures over the 1986-1999 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 crime-and-punishment literature. We find the challenge-rate to robustly deter future horizontal (both relative and absolute) merger activity; the court-loss-rate to moderately affect absolute-horizontal merger activity; and the investigation-rate, prohibition-rate and court-win-rate to not significantly deter future horizontal mergers. Accordingly, the conditional probability of eliciting an antitrust challenge (i.e., remedies and prohibitions) is unique amongst the different merger policy instruments as it yields a robust deterrence effect.