Simulation Analysis On The Unilateral Effect Of Horizontal Merger

In recent years, mergers and acquisitions between enterprises occur frequently in the international market, especially those between large enterprises are strengthening. China’s M&A market transaction scale is increasing year by year, and has become the largest merger market in the Asian-Pacific region. Under the background of M&A in the ascendant, on the one hand, we should actively strengthen the integration of resources, enhance the international competitiveness of enterprises and improve efficiency for China’s economic development in order to serve for economic development. At the same time, M&A that may cause damage to fair competition in the market should be prevented to reduce the negative impact on consumers, related enterprises and even the whole national economy. M&A may produce not only efficiency but anti competitive effects to the detriment of the fair competition in the market and the interests of consumers. Antitrust authorities should trade-off between the efficiency effect and the anti competitive effect. Compared to the M&A situation, China’s anti-monopoly legislation is lagging behind. Related laws, regulations and detailed rules for the implementation are yet to be improved. At the same time, our law enforcement power is still weak, and law enforcement experience is insufficient. There is an urgent need to deepen the the theoretical study of antitrust and to improve the level of the anti-monopoly law enforcement in order to improve the ability to investigate big merger between enterprises in response to the growing M&A market. But at present, the concentration of big mergers and acquisitions review mainly relies on simple relevant market definition and the analysis of the traditional market structure. Quantitative analyses as evidence of an antitrust investigation conclusion are still deficient. With the increasing number of mergers and acquisitions, especially transnational mergers and acquisitions, if we can’t use more objective quantitative analysis in antitrust investigation conclusions, it is bound to reduce the persuasiveness of antitrust review conclusions, and even bring international economic disputes and friction. Therefore, the share of economic evidence in China’s antitrust investigation is the priority of antitrust theory research and law enforcement practice in our country.The research is focused on simulation analysis on the unilateral effect of merges between manufacturers producing differentiation product.In theoretical analysis, in reference to domestic and foreign literature this paper builds a complete theoretical framework including the unilateral effect, unilateral effect simulation analysis, demand system estimation, the relevant market definition theory and method. The theoretical analysis of paper mainly focuses on four aspects. Firstly, this paper carries on the analysis of unilateral effect from two aspects:the theoretical basis and the economic analysis. The effect of unilateral identification methods are divided into three categories:the estimation method based on the SCP paradigm of the structure; a simplified type of the empirical analysis represented by the UPP method, the method of event study and CMCR represent; the structured empirical analysis represented by merger simulation. This paper points out that compared with other unilateral effect assessment methods, the simulation analysis method is more complex and accurate. In the case of data and time sufficient, quantitative analysis of the unilateral effect can serve as a good tool. Secondly, demand system estimation is the most controversial and difficult part in merger simulation. Due to demand system estimation has remarkable effect on the results of simulation analysis, this paper classifies the estimation of demand method system from the angle of product space and feature space. Thirdly, this paper discusses the related theory of the relevant market definition. This paper divides the methods of relevant market definition into the traditional definition method based on products functional, the quantitative definition method based on product elasticity, and the SNNIP method based on the hypothetical monopolist test. In order to provide theoretical reference to China’s anti monopoly law enforcement, this paper focuses mainly on the hypothetical monopolist test and the critical loss analysis method which used popularly in practice. Fourth, this paper puts forward the theory basis of merger simulation analysis, sums up building elements of the simulation model, builds a systematic simulation procedure according to the antitrust review steps, and points out the problems need to be paid attention to in simulation analysis.The empirical analyses are carried out from three aspects. Firstly, this paper emphasizes the consistency and coherence between theoretical logic and empirical logic of merger simulation. At present, the vast majority of research on merger simulation ignored either the analysis of relevant market definition or the estimation of demand system in the front end analysis. Some ignored the relevant market definition, others directly quote other people’s research many years before. This paper analyzes the unilateral effect of horizontal merger in the case of China’s household air-conditioning market following the clues of the demand system estimation, the relevant market definition, merger simulation analysis and sensitivity test. Through empirical analysis, this paper identifies the operation steps of merger simulation, summarizes the problems that need careful attention according to the previous case, and objectively evaluates the merger simulation analysis. Secondly, this article selects PCAIDS model and nested PCAIDS model to carry on horizontal merger simulation in China’s household air conditioning market. The paper classifies the nested groups of the household air conditioning market by elastic. The calibration of nested data is implemented by accounting data which can be obtained relatively easy by the antitrust agencies. Through the empirical analysis, this paper illustrates the operation steps of unilateral effect simulation analysis, including the relevant market definition, demand system estimation, simulation analysis and sensitivity test. Since estimation of demand system is very important, this article uses the nested PCAIDS model to simulate the demand system in keeping the AIDS model’s higher estimation accuracy and at the same time keeping the low data requirements of PCAIDS model. Thirdly, this paper puts forward that many countries make use of safe harbor rules as antitrust investigation screening tool, but there are two main problems. One is that the national safety standards are different in different countries; the other is that the lack of accordance of safe harbor settings. This article uses China’s data and implements more than 130000 times of simulation calculations using R language via PCAIDS model to calculate the safe harbor rules in our country.At last, this paper carries on a brief summary, reviews merger simulation technology, points out the attitude that should be held on merger simulation and puts forward relevant policy suggestions.