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An equilibrium analysis of efficiency gains from mergers

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  • Jovanovic, Dragan
  • Wey, Christian

Abstract

We analyze the efficiency defense in merger control. First, we show that the relationship between exogenous efficiency gains and social welfare can be non-monotone. Second, we consider both endogenous mergers and endogenous efficiencies and find that merger proposals are largely aligned with a proper social welfare analysis which explicitly considers the without merger counterfactual. We demonstrate that the merger specificity requirement does not help much to select socially desirable mergers; to the contrary, it may frustrate desirable mergers inducing firms not to claim efficiencies at all. --

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Bibliographic Info

Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 64.

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Date of creation: 2012
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Handle: RePEc:zbw:dicedp:64

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Keywords: Horizontal Mergers; Efficiency Defense; Merger Specific Efficiencies;

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References

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  1. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Competition Policy Center, Working Paper Series, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley qt8v1500b8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  2. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2002. "The Political Economy of European Merger Control: Evidence using Stock Market Data," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 02-34, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  3. Johan Lagerlöf & Paul Heidhues, 2002. "On the Desirability of an Efficiency Defense in Merger Control," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 02-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Nilssen, T. & Sorgard, L., 1995. "Sequential Horizontal Mergers," Memorandum, Oslo University, Department of Economics 30/1995, Oslo University, Department of Economics.
  5. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers, University of California at Berkeley 8880, University of California at Berkeley.
  6. Fabienne Ilzkovitz & Roderick Meiklejohn, 2003. "European Merger Control: Do We Need an Efficiency Defence?," Journal of Industry, Competition and Trade, Springer, Springer, vol. 3(1), pages 57-85, March.
  7. Neven, Damien J. & Roller, Lars-Hendrik, 2005. "Consumer surplus vs. welfare standard in a political economy model of merger control," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(9-10), pages 829-848, December.
  8. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521016919.
  9. Licun Xue & Rabah Amir & Effrosyni Diamantoudi, 2004. "Merger Performance under Uncertain Efficiency Gains," Working Papers, Fondazione Eni Enrico Mattei 2004.79, Fondazione Eni Enrico Mattei.
  10. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 185-99, May.
  11. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(6), pages 1201 - 1251.
  12. Banal-Estanol, Albert & Macho-Stadler, Ines & Seldeslachts, Jo, 2008. "Endogenous mergers and endogenous efficiency gains: The efficiency defence revisited," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(1), pages 69-91, January.
  13. Cheung, Francis K., 1992. "Two remarks on the equilibrium analysis of horizontal merger," Economics Letters, Elsevier, Elsevier, vol. 40(1), pages 119-123, September.
  14. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(2), pages 181-87, June.
  15. Massimo MOTTA & Helder VASCONCELOS, 2003. "Efficiency Gains and Myopic Antitrust Authority in a Dynamic Merger Game," Economics Working Papers, European University Institute ECO2003/23, European University Institute.
  16. Bergman, Mats A. & Jakobsson, Maria & Razo, Carlos, 2005. "An econometric analysis of the European Commission's merger decisions," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 23(9-10), pages 717-737, December.
  17. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(1), pages 1-29, April.
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Citations

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Cited by:
  1. Jovanovic, Dragan & Wey, Christian, 2013. "Passive partial ownership, sneaky takeover, and merger control," DICE Discussion Papers 102, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Jovanovic, Dragan, 2013. "Mergers, managerial incentives, and efficiencies," DICE Discussion Papers 88, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Mariana Cunha & Paula Sarmento & Hélder Vasconcelos, 2014. "Uncertain Efficiency Gains and Merger Policy," FEP Working Papers 527, Universidade do Porto, Faculdade de Economia do Porto.

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