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Can no antitrust policy be better than some antitrust policy?

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Author Info
Mattoo, Aaditya

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Abstract

The author examines how the market structure is likely to evolve where there is multistage oligopolistic production - and what the implications of this are for antitrust policy. The author treats the decision to merge across or within stages of production as endogenous. He shows that when firms at a particular stage of production are relatively dominant, simultaneous merger decision are conducive to competitive vertically integrated outcomes, while sequential decisions are not. The persistence of non-integrated market structures may be explained by the existence of equally dominant firms that make merger decisions sequentially. The credible threat of retaliatory merger may deter both socially desirable and undesirable forms of merger. What implications does the author's findings have for antitrust policymakers? For one thing, partial antitrust policy may lead to less competitive market structures than the total absence of such policy, because policy barriers to horizontal mergers only at a particular stage of production eliminate the deterrent effect of retaliatory merger. For example, if the two stages of production are located in countries with different antitrust legislation, a policy that protects consumers from domestic mergers may ultimately hurt them by rendering foreign mergers more attractive. When the equilibrium market structure does not contain socially undesirable mergers, there is no need for antitrust (or competition) policy. Moreover, there may sometimes be a case for the government actually providing supplementary incentives to encourage particular forms of merger - as, for instance, when the threat of retaliatory merger deters socially desirable vertical mergers.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2191.

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Date of creation: 30 Sep 1999
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Handle: RePEc:wbk:wbrwps:2191

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Keywords: General Technology Economic Theory&Research Microfinance Environmental Economics&Policies Small and Medium Size Enterprises Economic Theory&Research Environmental Economics&Policies Microfinance Private Participation in Infrastructure General Technology

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    Other versions:
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    Other versions:
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