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Uncertain Efficiency Gains and Merger Policy

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  • Mariana Cunha

    ()
    (FEP-UP, School of Economics and Management, University of Porto)

  • Paula Sarmento

    ()
    (FEP-UP, CEF-UP)

  • Hélder Vasconcelos

    ()
    (FEP-UP, CEF-UP, CEPR)

Abstract

This paper studies the role of uncertainty in merger control and in merger decisions. In a Cournot setting, we consider that mergers may give rise to uncertain endogenous efficiency gains and that every merger has to be submitted for approval to the Antitrust Authority (AA). We assume that both the AA and the firms in the industry face the same uncertainty about the future efficiency gains induced by the merger. It is shown that an increase in the degree of uncertainty benefits both insider and outsider firms but also the consumers. Further, when uncertainty is high, there is a greater likelihood that firms propose a merger to the AA and that the AA accepts it. Interestingly, however, although uncertainty enhances merger approval chances, it also decreases merger's stability, by increasing outsiders' incentives to free-ride on it.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 527.

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Length: 24 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:por:fepwps:527

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Keywords: Efficiency gains; Merger control; Uncertainty;

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