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Assessing horizontal mergers under uncertain efficiency gains

  • Choné, Philippe
  • Linnemer, Laurent

The analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains. We examine the role of uncertainty in this tradeoff. In theory, the attitude towards uncertainty depends on the curvature of the social objective function. On the one hand, adjustment effects, both on the consumers' and firms' sides, tend to make consumers' surplus and firms' profits convex. On the other hand, pass-through effects may act in the opposite direction. We show that convexity prevails in a number of situations, including the most general linear demand model. Implications for empirical merger analysis are exposed.

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

Volume (Year): 26 (2008)
Issue (Month): 4 (July)
Pages: 913-929

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Handle: RePEc:eee:indorg:v:26:y:2008:i:4:p:913-929
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Heidhues, Paul & Lagerlöf, Johan N. M., 2003. "On the Desirability of an Efficiency Defense in Merger Control," CEPR Discussion Papers 3841, C.E.P.R. Discussion Papers.
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  12. Werden, Gregory J, 1996. "A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 409-13, December.
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