More on vertical mergers

I note by way of interest that Henry Ergas has responded to my comments taking issue with some of his initial thoughts on the ACCC’s draft merger guidelines. He notes that my (i) argument that studies of vertical mergers may be biased towards seeing them as favourable may not be so strong (especially as bad mergers get through: something I argued was the case with AGL-Loy Yang) and (ii) that AGL-Loy Yang wasn’t a bad merger. I can see his point on (i) but that reduces but doesn’ eliminate such biases. On (ii), I refer back to my recent work with Frank Wolak that actually looks back at what happened after AGL-Loy Yang and confirms that the ACCC’s predictions of 20 percent price rises were largely borne out. In any case, I reiterate my view that it is precisely because vertical mergers have ambiguous consequences that merits the ACCC spending extra time being extra clear in how they will look at them and such emphasis is not misplaced. (By the way, one of these days Henry Ergas and I might agree on something. Will that mean we are both right or both wrong?)

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