)[1] Farrell and Shapiro (1990)[2] highlighted issues of the US Department of Justice's Merger Guidelines (1984), with its use of Herfindahl-Hirschman indices.
Based on the assumptions, they established 7 propositions relating to price and welfare outcomes of mergers.
The steps in the merger simulation process can be divided into two categories: "front-end" and "back-end" analysis.
The firm's marginal costs are taken into account, as well as factors that may influence it, such as diseconomies of scale.
The strategic variable(s) the firm would focus on and modify in order to compete with its rivals.
Backward induction will be used to find the subgame perfect equilibrium of the simulation because the game will be modelled vertically.