Inclusion of an efficiency defense brings about an asymmetric information problem between an antitrust agency and merging firms concerning efficiencies due to mergers. Effort level and merger type determine the probability of producing the evidence that efficiencies satisfy a consumer welfare standard. The agency minimizes mistakes in its decisions. The model explains the presence of a fuzzy approval rule, i.e. approval probabilities between zero and one. If type I and type II mistakes are perfect substitutes, then only under strict restrictions on exogenous parameters fuzziness is welfare enhancing. If the agency can commit to certain policies or mistakes are non-perfect substitutes, then a fuzzy rule is preferred under wider range of parameters.
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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number
wp234.
Find related papers by JEL classification: K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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