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Horizontal Mergers, Involuntary Unemployment, and Welfare

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  • Oliver Budzinski

    ()
    (Department of Environmental and Business Economics, University of Southern Denmark)

  • Jürgen-Peter Kretschmer

    ()
    (Economic Policy Unit, Philipps-University of Marburg, Germany)

Abstract

Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency ef-fect increases welfare by reducing the costs of production (synergies). How-ever, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed.

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Bibliographic Info

Paper provided by University of Southern Denmark, Department of Environmental and Business Economics in its series Working Papers with number 90/09.

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Length: 35 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:sdk:wpaper:90

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Keywords: Horizontal mergers; involuntary unemployment; efficiency defense; oligopoly; competition;

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  1. d’ASPREMONT, Cl. & DOS SANTOS FERREIRA, R. & GERARD-VARET, L.-A., 1988. "Unemployment in a Cournot oligopoly model with Ford effects," CORE Discussion Papers 1988018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. 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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  4. Clougherty, Joseph & Duso, Tomaso, 2008. "The impact of horizontal mergers on rivals: Gains to being left outside a merger," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 239, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  6. Gugler, Klaus & Yurtoglu, B. Burcin, 2004. "The effects of mergers on company employment in the USA and Europe," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 481-502, April.
  7. Alberto Behar & James Hodge, 2007. "The employment effects of mergers in a declining industry: the case of South African gold mining," Economics Series Working Papers 335, University of Oxford, Department of Economics.
  8. Margolis, David N., 2006. "Should Employment Authorities Worry About Mergers and Acquisitions?," IZA Discussion Papers 1994, Institute for the Study of Labor (IZA).
  9. d’ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GERARD-VARET, L.-A., 1986. "On monopolistic competition and involuntary unemployment," CORE Discussion Papers 1986035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  18. Erkki Koskela & Rune Stenbacka, 2005. "Product Market Competition, Profit Sharing and Equilibrium Unemployment," CESifo Working Paper Series 1603, CESifo Group Munich.
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