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On efficiency, concentration and welfare

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  • BOCCARD, Nicolas

Abstract

The welfare impact of a merger involves the market power offense and the efficiency defense. Salant et al. (1983) show that mergers among symmetric firms are unprofitable except for monopolization. We characterize the limit to this merger paradox in a simple linear Cournot oligopoly with asymmetric costs. Farrell and Shapiro (1990) provide sufficient conditions for a profitable merger to increase welfare but leave open whether it exists. We characterize the degree of cost asymmetry making a merger both profitable and socially desirable. Comparing rationalization and synergy within the efficiency defense, we show that for most industry structures, a rationalization merger is more likely to be welfare enhancing but a synergy merger is more likely to be profitable.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009040.

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Date of creation: 01 May 2009
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Handle: RePEc:cor:louvco:2009040

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Keywords: merger; efficiency; concentration; welfare; antitrust; competition;

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  1. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003. "The effects of mergers: an international comparison," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 625-653, May.
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  9. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-63, October.
  10. Klaus Gugler & Ralph Siebert, 2007. "Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 645-659, November.
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  12. Joseph Farrell and Carl Shapiro., 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Economics Working Papers E00-291, University of California at Berkeley.
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  18. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
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  23. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-37, December.
  24. Steven Heubeck & Donald J. Smythe & Jingang Zhao, 2006. "A Note on the Welfare Effects of Horizontal Mergers in Asymmetric Linear Oligopolies," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 29-47, May.
  25. Whinston, Michael D., 2007. "Antitrust Policy toward Horizontal Mergers," Handbook of Industrial Organization, Elsevier.
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