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Preventing merger unilateral effects: A Nash-Cournot approach to asset divestitures

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  • Bougette, Patrice

Abstract

This paper aims to analyze the effectiveness of asset transfers in preventing unilateral effects of a merger. We show that asset divestitures allow the remedying of certain price increases. Market size negatively impacts the scope of the divestiture package, while the number of merging firms increases with it. In spite of the required asset sale, parties' profitability remains ensured in most cases. Buyers always make profit from their purchase if industry fixed costs are rather low. We also add the alternative of a second buyer and compare outcomes with both consumer and welfare standards. Furthermore, as many mergers lead to efficiency gains, we integrate specific cost synergies and show that the higher the synergies, the smaller the divestiture share. In the case when no buyers are available, we show that the option of divesting to a start-up entity is bound to fail if firms' technology remains the same. Lastly, we find that product differentiation can reduce the efficiency of the asset transfer.

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Bibliographic Info

Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 64 (2010)
Issue (Month): 3 (September)
Pages: 162-174

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Handle: RePEc:eee:reecon:v:64:y:2010:i:3:p:162-174

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Web page: http://www.elsevier.com/locate/inca/622941

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Keywords: Merger remedies Divestitures Cournot competition Efficiency gains Consumer surplus Welfare;

References

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  1. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
  2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  3. Joseph Farrell and Carl Shapiro., 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Economics Working Papers E00-291, University of California at Berkeley.
  4. Dennis W. Carlton, 2007. "Does Antitrust Need to be Modernized?," EAG Discussions Papers 200703, Department of Justice, Antitrust Division.
  5. Ivaldi, Marc & Jullien, Bruno & Rey, Patrick & Seabright, Paul & Tirole, Jean, 2003. "The Economics of Unilateral Effects," IDEI Working Papers 222, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Motta, Massimo & Vasconcelos, Helder, 2005. "Efficiency gains and myopic antitrust authority in a dynamic merger game," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 777-801, December.
  7. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  8. James A. Brander & Anming Zhang, 1990. "Market Conduct in the Airline Industry: An Empirical Investigation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 567-583, Winter.
  9. Cosnita, A. & Tropeano, J.P., 2008. "Negotiating remedies : revealing the merger efficiency gains," Working Papers 200803, Grenoble Applied Economics Laboratory (GAEL).
  10. Lundmark, Robert & Nilsson, Mats, 2003. "What do economic simulations tell us? Recent mergers in the iron ore industry," Resources Policy, Elsevier, vol. 29(3-4), pages 111-118.
  11. Artz, Benjamin & Heywood, John S. & McGinty, Matthew, 2009. "The merger paradox in a mixed oligopoly," Research in Economics, Elsevier, vol. 63(1), pages 1-10, March.
  12. Emilie, Dargaud, 2010. "Mergers, cartels and leniency programs: The role of capital stocks," Research in Economics, Elsevier, vol. 64(1), pages 45-57, March.
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Cited by:
  1. Ormosi, Peter L., 2012. "Claim efficiencies or offer remedies? An analysis of litigation strategies in EC mergers," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 578-592.
  2. Patrice Bougette, 2011. "Négociation d'engagements en matière de concentrations : une perspective d'économiste," Post-Print halshs-00580669, HAL.

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