Empirical evidence demonstrates that mergers, on average, create value for shareholders of the merging firms. The relevant question from an antitrust perspective, however, is the source of these gains. Increased efficiency is one possibility. It is also possible that in some cases merger gains derive not from enhanced efficiency, but rather from an enhanced ability to realize "monopoly profits." To determine whether a proposed merger is likely to be pro- or anti-competitive, economists often follow the approach outlined in the United States Justice Department's Merger Guidelines and ask whether the merger seems likely to facilitate collusion. In reviewing the competitive effects of the proposed sale of Conrail to Norfolk Southern, the Justice Department took the position that the standards it uses to analyze mergers under the Clayton Act are "substantially the same" as the standards used by the Interstate Commerce Commission (ICC) in analyzing railroad mergers coming before that body. This paper is not a critical review of the Justice Department's economic analysis of the recently abandoned transaction between Conrail and Norfolk Southern, nor is it a legal analysis of the Justice Department's position that its standards are those of the ICC. The subjects of this paper are more general. First, we explain in more detail the conventional economic analysis of the competitive effects of mergers and how that analysis should be applied in the railroad industry. Defining the relevant market receives special emphasis. Second, we consider whether there is anything extraordinary about the railroad industry that renders the conventional analysis incomplete or inappropriate.
Robert S. Stillman, Analyzing the Competitive Effects of Mergers: Is There Anything Special about Railroads, 34 Clev. St. L. Rev. 401 (1985-1986)