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Assessing Horizontal Mergers under Uncertain Efficiency Gains

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  • Philippe Choné

    (Crest)

  • Laurent Linnemer

    (Crest)

Abstract

The analysis of horizontal mergers hinges on a tradeoff between unilateral effectsand efficiency gains. The article examines the role of uncertainty (on theefficiency gains) in this tradeoff. Common wisdom is that the antitrust authoritiesshould be very cautious about random gains. Our results show thatdismissing efficiency gains on the sole ground that they are uncertain would notbe theoretically founded. Indeed, the attitude towards uncertainty depends onthe curvature of the social objective function. We exhibit a number of situationswhere the objective is convex in the efficiency gains, implying that competitionauthorities should welcome the risk for a given expectation of efficiency gains.Implications for empirical merger analysis are exposed.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2006-06.

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Length: 33
Date of creation: 2006
Date of revision:
Handle: RePEc:crs:wpaper:2006-06

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References

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  5. Johan N. M. Lagerlöf & Paul Heidhues, 2004. "On the Desirability of an Efficiency Defense in Merger Control," Royal Holloway, University of London: Discussion Papers in Economics 04/24, Department of Economics, Royal Holloway University of London, revised Oct 2004.
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  13. repec:cup:cbooks:9780521816632 is not listed on IDEAS
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  19. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-26, October.
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Citations

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Cited by:
  1. Le Pape, Nicolas & Zhao, Kai, 2014. "Horizontal mergers and uncertainty," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 8(23), pages 1-31.
  2. Heijdra, B.J. & Ligthart, J.E., 2005. "Fiscal Policy, Monopolistic Competition and Finite Lives," Discussion Paper 2005-126, Tilburg University, Center for Economic Research.
  3. AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2008. "Merger Performance under Uncertain Efficiency Gains," Cahiers de recherche 09-2008, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Le Pape, Nicolas & Zhao, Kai, 2013. "Horizontal mergers and uncertainty," Economics Discussion Papers 2013-62, Kiel Institute for the World Economy.
  5. Ding, Wei & Fan, Cuihong & Wolfstetter, Elmar G., 2013. "Horizontal mergers with synergies: Cash vs. profit-share auctions," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 382-391.
  6. Emilie Dargaud, 2013. "Horizontal mergers, efficiency gains and remedies," European Journal of Law and Economics, Springer, vol. 36(2), pages 349-372, October.

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