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Mergers between regulated firms with unknown efficiency gains

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  • Raffaele Fiocco
  • Dongyu Guo

Abstract

In an industry where regulated firms interact with unregulated competitors, we investigate the welfare effects of a merger between regulated firms when efficiency gains are uncertain before the merger and their realization becomes private information of the merged firm. The optimal merger policy trades off potential efficiency gains against regulatory distortions from informational problems. We show that, as a consequence of this trade-off, fiercer competition between unregulated firms induces a more lenient merger policy. However, if the regulated firms diversify into a competitive segment of the market, softer competition can relax the optimal merger policy. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Raffaele Fiocco & Dongyu Guo, 2015. "Mergers between regulated firms with unknown efficiency gains," Review of Economic Design, Springer;Society for Economic Design, vol. 19(4), pages 299-326, December.
    • Handle: RePEc:spr:reecde:v:19:y:2015:i:4:p:299-326
    DOI: 10.1007/s10058-015-0178-5
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    Cited by:

    1. Jonas Teusch, 2019. "When Efficient Firms Flock Together: Merger Incentives Under Yardstick Competition," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(2), pages 237-255, September.
    2. TEUSCH, Jonas, 2016. "Merger Incentives Under Yardstick Competition : a Theoretical Model," LIDAM Discussion Papers CORE 2016037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    Asymmetric information; Competition; Efficiency gains; Mergers; Regulation; D82; L43; L51;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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