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Sequential mergers and competition policy under partial privatisation

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  • Takeshi Ebina
  • Daisuke Shimizu

Abstract

We examine optimal merger and privatisation policies in a partially privatised oligopoly with differentiated goods. We first show that under the subgame perfect Nash equilibrium, sequential mergers either emerge completely or do not emerge at all. Given this outcome, we derive the following policy implications. First, the level of social welfare can be U‐shaped with respect to the number of merged firm pairs. That is, given that there are some mergers that have already taken place, further mergers may actually lead to welfare improvement. However, these welfare‐improving mergers may not be privately profitable, implying that merger‐friendly policies are appropriate. Second, policymakers can halt privatisation in order to diminish the private incentive for further sequential (welfare‐deteriorating) mergers and improve welfare. Third, full nationalisation is never optimal unless the goods are homogeneous or independent. Our results are applicable to the Japanese life insurance industry and the partial privatisation of Japan Post Insurance.

Suggested Citation

  • Takeshi Ebina & Daisuke Shimizu, 2019. "Sequential mergers and competition policy under partial privatisation," Australian Economic Papers, Wiley Blackwell, vol. 58(4), pages 375-397, December.
    • Handle: RePEc:bla:ausecp:v:58:y:2019:i:4:p:375-397
    DOI: 10.1111/1467-8454.12159
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    Cited by:

    1. Akio Kawasaki, 2021. "Optimal number of privatised products in a differentiated mixed oligopoly with free market entry," Australian Economic Papers, Wiley Blackwell, vol. 60(4), pages 651-663, December.

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