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The 7uropean #nion8s Guidelines on the Assessment of Horizontal Mergers 0*1are

similar.

There are unlikely to be hori!ontal competition concerns in a market with a post&

merger %%I below (,'''. $imilarly, there are unlikely to be hori!ontal competition concerns in a merger

with a post&merger %%I between (,''' and +,''' and a delta below +)', or a

merger with a post&merger %%I above +,''' and a delta below ()', except in the

presence of special circumstances that are set forth in the Guidelines.

Concentration ratioscan also be used to measure the degree of market concentration.

9oncentration ratios measure the combined market share of a given number of large firms.

"or example, the four-firm concentration ratiogives the combined market share of the

largest four firms in an industry, as a proportion of the total si!e of the industry. Thehigher the ratio, the more concentrated the industry, and the greater the potential for

market power.

Indexes of Market Power

The "erner Indexmeasures the extent to which a given firm8s prices exceed marginalcosts. It is measured as the difference between the price of a good or service and its

marginal cost, expressed as a proportion of the price3

The :erner Index is higher, the greater the mark&up in price over marginal cost. %owever,a high :erner Index does not necessarily mean the firm in uestion is exercising market

power. ;rices may exceed marginal costs for a number of legitimate reasons. In thetelecommunications sector at least some prices mustexceed marginal costs to cover the

high fixed costs of networks.

In practice, the :erner Index can be problematic to calculate. This is particularly true inindustries such as telecommunications where calculating a firm8s marginal cost of

production for a given service can be difficult.

7conomists use a modified version of the :erner Index called "#3

The parameters in the Modified :erner Index are3

The firm8s price

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