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The Effects of Remedies on Merger Activity in Oligopoly

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  • Wey, Christian
  • Dertwinkel-Kalt, Markus

Abstract

We analyze the effects of structural remedies on merger activity in a Cournot oligopoly when the antitrust agency applies a consumer surplus standard. Remedies increase the scope for profitable and acceptable mergers, while divestitures to an entrant firm are most effective in this regard. Remedial divestitures are most attractive from a social welfare point of view, when the merging parties can extract the entire gains associated with the asset sale. We also show that the merging parties have strong incentives to search for the most efficient buyer and we identify instances so that a remedy rule induces strictly price-decreasing mergers. Finally, under incomplete information an effcient merger type is to be doomed to "overshoot" with its divestiture proposal in a pooling equilibrium which is also possible under separation. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order with number 79888.

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Date of creation: 2013
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Handle: RePEc:zbw:vfsc13:79888

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  1. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1201 - 1251.
  2. Luis M. B. Cabral, 2001. "Horizontal Mergers With Free-Entry: Why Cost Efficiencies May Be a Weak Defense and Asset Sales a Poor Remedy," Working Papers 01-05, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  4. Thibaud Vergé, 2010. "Horizontal Mergers, Structural Remedies, And Consumer Welfare In A Cournot Oligopoly With Assets," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 723-741, December.
  5. Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2011. "How effective is European merger control?," European Economic Review, Elsevier, vol. 55(7), pages 980-1006.
  6. Helder Vasconcelos, 2010. "Efficiency Gains And Structural Remedies In Merger Control," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 742-766, December.
  7. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
  8. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
  9. Spector, David, 2002. "Horizontal mergers, entry, and efficiency defences," CEPREMAP Working Papers (Couverture Orange) 0206, CEPREMAP.
  10. Joseph A. Clougherty & Jo Seldeslachts, 2011. "The Deterrence Effects of U.S. Merger Policy Instruments," Tinbergen Institute Discussion Papers 11-095/1, Tinbergen Institute.
  11. Joseph Farrell & Carl Shapiro, 1990. "Asset Ownership and Market Structure in Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 21(2), pages 275-292, Summer.
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