Deputy Assistant Attorney General Aviv Nevo Delivers Remarks on Increased Bargaining Leverage | Practical Law

Deputy Assistant Attorney General Aviv Nevo Delivers Remarks on Increased Bargaining Leverage | Practical Law

At the Conference on Antitrust in Highly Innovative Industries, Deputy Assistant Attorney General Aviv Nevo outlined a method of analyzing mergers that increase bargaining leverage.

Deputy Assistant Attorney General Aviv Nevo Delivers Remarks on Increased Bargaining Leverage

by Practical Law Antitrust
Published on 24 Jan 2014USA (National/Federal)
At the Conference on Antitrust in Highly Innovative Industries, Deputy Assistant Attorney General Aviv Nevo outlined a method of analyzing mergers that increase bargaining leverage.
In a speech given at the Stanford Institute for Economic Policy Research and Cornerstone Research on January 22, 2014, Deputy Assistant Attorney General Aviv Nevo set forth a way to analyze mergers that increase bargaining leverage.
Nevo explained that these mergers typically deal with providers who negotiate with a distributor to be included in a distributor's product or network. For example, in the smartphone industry, the distributor is the smartphone producer and the providers are the patent holders who negotiate to have their features included on a smartphone. Likewise, in the health care industry, hospitals and physicians are providers who negotiate to be included in an insurance company's (the distributor) plan.
Nevo encouraged the use of the Nash bargaining model to determine:
  • The interplay between the providers as they separately negotiate with the distributor.
  • How a provider's negotiating power can change post-merger.
The Nash theory determines whether a merger between providers will have an effect on the fees they negotiate with the distributor by looking at how each party fares if an agreement is reached or not reached, both:
  • Before the providers merge, where the providers negotiate independently with the distributor.
  • After the merger, where the providers jointly negotiate.
For a real life example, Nevo described the FTC's case against Promedica Health Sys., Inc., where a hospital merger increased the hospitals' bargaining leverage with insurance companies who needed to include at least one of the merging hospitals in their insurance plans in order to market their network to customers. Post-merger, the hospitals were able to negotiate higher reimbursement rates causing increased insurance rates (see What's Market, In the Matter of ProMedica Health System, Inc. (litigated case)).
Nevo encouraged counsel and economists to consider the Nash model to analyze mergers of providers in high tech, health care and other industries, where a merger could lead to an increase in bargaining leverage for merging providers.