Final answer:
The government defines the relevant market for a merger review by analyzing the presence of close substitutes, estimating demand and supply curves, and understanding competition in the industry. This includes considering market power, product similarity, entry barriers, and competitive strategies, leading to the creation of a statistical model predicting consumer outcomes.
Step-by-step explanation:
When the government reviews a proposed merger between two companies, it needs to define the relevant market. This involves considering whether there are close substitutes for the products of the merging firms. The process typically includes a detailed analysis of specific markets and companies using statistical tools and real-world evidence to estimate the demand curves and supply curves of the firms.
Regulators will then specify how competition occurs in the industry, assessing factors such as price competition, product differentiation, advertising intensity, and the quality of service. This process seeks to understand the market power of each firm, the similarity of each firm's products to those of other firms, barriers to entry for new competitors, and the competitive strategies employed by firms.
Building upon these insights, a statistical model is developed to estimate the likely outcome for consumers if the merger were allowed. This approach has evolved in response to the realization that market concentration measures and assumptions of uniform competitive conditions are not sufficient for informed antitrust decisions.