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Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index

Listed author(s):
  • Goppelsroeder, M.

    (Graduate Institute of International Studies, Geneva)

  • Schinkel, M.P.

    ()

    (Universiteit van Amsterdam)

  • Tuinstra, J.

    (Universiteit van Amsterdam)

In both US and EU merger control, merger-specific efficiencies are recognized as a possible defense for horizontal mergers that raise competition concerns. We introduce the Werden-Froeb-index (WFI) to assist in evaluating these efficiencies. The index measures the average reduction in marginal costs required to restore pre-merger equilibrium prices and quantities after the merger is consummated. It has low information requirements and can deal with any number of firms in price- or quantity-competition merging fully or partially, and a large class of demand and cost functions. We show how the WFI complements Phase I merger inquiries as a screening mechanism.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 06-09.

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Date of creation: 2006
Handle: RePEc:ams:ndfwpp:06-09
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  2. Lagerlof, Johan N.M. & Heidhues, Paul, 2005. "On the desirability of an efficiency defense in merger control," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 803-827, December.
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  4. 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 409-413, December.
  5. Joseph Farrell and Carl Shapiro., 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Economics Working Papers E00-291, University of California at Berkeley.
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  12. Reitman, David, 1994. "Partial Ownership Arrangements and the Potential for Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 313-322, September.
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  16. Epstein, Roy J. & Rubinfeld, Daniel L., 2001. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt9jt389nb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  17. Dansby, Robert E & Willig, Robert D, 1979. "Industry Performance Gradient Indexes," American Economic Review, American Economic Association, vol. 69(3), pages 249-260, June.
  18. Froeb, Luke M. & Werden, Gregory J., 1998. "A robust test for consumer welfare enhancing mergers among sellers of a homogeneous product," Economics Letters, Elsevier, vol. 58(3), pages 367-369, March.
  19. Epstein, Roy J. & Rubinfeld, Daniel, 2012. "Merger Simulation: A Simplified Approach with New Applications," Department of Economics, Working Paper Series qt2k9116ph, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  20. Bruce R. Lyons, 2004. "Reform of European Merger Policy," Review of International Economics, Wiley Blackwell, vol. 12(2), pages 246-261, 05.
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  23. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
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