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On the desirability of an efficiency defense in merger control

Listed author(s):
  • Lagerlof, Johan N.M.
  • Heidhues, Paul

We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority’s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 23 (2005)
Issue (Month): 9-10 (December)
Pages: 803-827

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Handle: RePEc:eee:indorg:v:23:y:2005:i:9-10:p:803-827
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
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  16. Andrei Medvedev, 2004. "Efficiency Defense and Administrative Fuzziness in Merger Regulation," CERGE-EI Working Papers wp234, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  17. Daughety, Andrew F & Reinganum, Jennifer F, 2000. "On the Economics of Trials: Adversarial Process, Evidence, and Equilibrium Bias," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 365-394, October.
  18. Tracy Lewis & Michel Poitevin, 1995. "Disclosure of Information in Regulatory Proceedings," CIRANO Working Papers 95s-01, CIRANO.
  19. Steven Shavell, 1994. "Acquisition and Disclosure of Information Prior to Sale," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 20-36, Spring.
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  23. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
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