Differentiated Product Competition and the Antitrust Logit Model: An Experimental Analysis * by Douglas D. Davis Department of Economics Virginia Commonwealth University Richmond, VA 23284-4000 E-mail: dddavis@vcu.edu Phone: (804) 828-7110 Fax: (804) 828-1719 and Bart J. Wilson Interdisciplinary Center for Economic Science George Mason University, MSN 1B2 Fairfax VA 22030 E-mail: bwilson3@gmu.edu Phone: (703) 993-4845 Fax: (703) 993-4851 March, 2003 Abstract This paper reports a laboratory experiment designed to begin a behavioral examination of the Antitrust Logit Model (ALM), a merger simulation device that U.S. antitrust authorities use to help determine when anticompetitive problems may arise from horizontal mergers in differentiated- product markets. We find that the ALM screens out non-problematic mergers rather well, even though the ALM predicts performance in specific markets imprecisely. Further examination of the data suggests that in this context, adjustments to pre-merger deviations from the underlying Nash equilibrium, rather than the exercise of market power drive post-merger performance. JEL Classifications: C9, L1, L4 Keywords: differentiated products, antitrust analysis, experimental economics * We thank the Editor and two anonymous referees for their helpful comments. The usual disclaimer applies. Financial assistance from the National Science Foundation and the VCU Faculty Excellence fund is gratefully acknowledged. The data, instructions, and appendix are available at http://www.people.vcu.edu/~dddavis.