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On the Desirability of an Efficiency Defense in Merger Control

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Author Info
Heidhues, Paul
Lagerlöf, Johan N.M.

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Abstract

We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority’s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3841.

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Date of creation: Mar 2003
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Handle: RePEc:cpr:ceprdp:3841

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Related research
Keywords: antitrust; asymmetric information; disclosure; efficiency gains; lobbying; rent seeking;

Other versions of this item:

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lars-Hendrik Röller & Johan Stennek & Frank Verboven, 2000. "Efficiency Gains from Mergers," CIG Working Papers FS IV 00-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  2. Tullock, Gordon, 1975. "On the Efficient Organization of Trials," Kyklos, Blackwell Publishing, vol. 28(4), pages 745-62.
  3. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    Other versions:
  4. Hyun Song Shin, 1998. "Adversarial and Inquisitorial Procedures in Arbitration," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 378-405, Summer. [Downloadable!] (restricted)
  5. Lewis, Tracy R & Poitevin, Michel, 1997. "Disclosure of Information in Regulatory Proceedings," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 50-73, April.
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  6. Froeb, Luke M. & Kobayashi, Bruce H., 2001. "Evidence production in adversarial vs. inquisitorial regimes," Economics Letters, Elsevier, vol. 70(2), pages 267-272, February. [Downloadable!] (restricted)
  7. Daughety, Andrew F & Reinganum, Jennifer F, 2000. "On the Economics of Trials: Adversarial Process, Evidence, and Equilibrium Bias," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 365-94, October.
  8. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 23-40, Fall. [Downloadable!] (restricted)
  9. Joseph Farrell & Carl Shapiro, 2001. "Scale Economies and Synergies in Horizontal Merger Analysis," Industrial Organization 0012002, EconWPA, revised 05 Jan 2001. [Downloadable!]
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  10. Spector, David, 2003. "Horizontal mergers, entry, and efficiency defences," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1591-1600, December. [Downloadable!] (restricted)
  11. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(1), pages 1-29, April.
  12. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn. [Downloadable!] (restricted)
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  13. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter. [Downloadable!] (restricted)
  14. Steven Shavell, 1994. "Acquisition and Disclosure of Information Prior to Sale," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 20-36, Spring. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Oliver Gürtler & Matthias Kräkel, 2006. "Mergers, Litigation and Efficiency," Discussion Papers 185, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  2. Andreea Cosnita & Jean-Philippe Tropeano, 2006. "On the effective design of the efficiency defence," Cahiers de la Maison des Sciences Economiques v06030, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
    Other versions:
  3. Philippe Choné & Laurent Linnemer, 2006. "Assessing Horizontal Mergers under Uncertain Efficiency Gains," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Chongwoo, Choe & Shekhar, Chander, 2009. "Compulsory or Voluntary Pre-merger Notification? Theory and Some Evidence," MPRA Paper 13450, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. Lagerlöf, Johan N.M., 2006. "A Theory of Rent Seeking with Informational Foundations," CEPR Discussion Papers 5893, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Marie Goppelsroeder & Maarten Pieter Schinkel & Jan Tuinstra, 2006. "Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index," Tinbergen Institute Discussion Papers 06-074/1, Tinbergen Institute. [Downloadable!]
  7. Goppelsroeder, M. & Schinkel, M.P. & Tuinstra, J., 2006. "Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index," CeNDEF Working Papers 06-09, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance. [Downloadable!]
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