New tools for antitrust policy

Most economists today agree that antitrust policy should ~ low prices and high product quality.Few kind words can be heard about monopolies. But true monopoly is extremely rare, and makers must analyze the behavior c:I a variety of different oligopolistic market structures. In the past, trust busters haw focused primarily on market shares as well as on particular forms of behavior. But today. with the advent of better data and powerful computers, economists can look at the actual, behavior when. A recent example shows how the tools of economics can be used to weigh antitrust decisions. In 1997 there was a proposed merger between Staples and Office Depot, two office-supply retail chains. Because the industry was relatively concentrated, the standard guidelines , would have given the merger’ a green light. ‘ But government economists gathered and analyzed actual scanner price and quantity data for every item sold by the two stores in different cities. Using the tools of industrial organization and they discovered an important pattern: Staples’ prices were significantly lower in where Office Depot also had a store than in cities where only Staples was present. This was strong evidence that the merger would allow Staples to raise prices. The merger was therefore disallowed. Some economists believe that data on actual behavior will replace market-share data in analyzing business behavior. Given the weakness of’market-share data in predicting economic behavior and performance. many will welcome this change.