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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.

Suggested Citation

  • Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," Working Papers 90/09, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    • Handle: RePEc:sdk:wpaper:90
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    Cited by:

    1. Budzinski, Oliver & Kretschmer, Jürgen-Peter, 2015. "Unprofitable horizontal mergers, external effects, and welfare," Ilmenau Economics Discussion Papers 96, Ilmenau University of Technology, Institute of Economics.

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    More about this item

    Keywords

    Horizontal mergers; involuntary unemployment; efficiency defense; oligopoly; competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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