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Assessing Horizontal Mergers under Uncertain Efficiency Gains

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  • Philippe Choné
  • Laurent Linnemer

Abstract

The analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains. The article examines the role of uncertainty (on the efficiency gains) in this tradeoff. Common wisdom is that the antitrust authorities should be very cautious about random gains. Our results show that dismissing efficiency gains on the sole ground that they are uncertain would not be theoretically founded. Indeed, the attitude towards uncertainty depends on the curvature of the social objective function. We exhibit a number of situations where the objective is convex in the efficiency gains, implying that competition authorities should welcome the risk for a given expectation of efficiency gains. Implications for empirical merger analysis are exposed.

Suggested Citation

  • Philippe Choné & Laurent Linnemer, 2006. "Assessing Horizontal Mergers under Uncertain Efficiency Gains," CESifo Working Paper Series 1726, CESifo.
  • Handle: RePEc:ces:ceswps:_1726
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    Cited by:

    1. Amir, Rabah & Diamantoudi, Effrosyni & Xue, Licun, 2009. "Merger performance under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 264-273, March.
    2. Shieh Shiou & Huang Chi-Fei & Chen Hsiao-Chi, 2013. "Can Horizontal Mergers Without Synergies Increase Consumer Welfare? Cournot and Bertrand Competition Under Uncertain Demand," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 453-484, April.
    3. Lang, Matthias, 2017. "Legal uncertainty as a welfare enhancing screen," European Economic Review, Elsevier, vol. 91(C), pages 274-289.
    4. Ding, Wei & Fan, Cuihong & Wolfstetter, Elmar G., 2013. "Horizontal mergers with synergies: Cash vs. profit-share auctions," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 382-391.
    5. Michele Bisceglia & Salvatore Piccolo & Emanuele Tarantino, 2018. "M&A Advisory and the Merger Review Process," CSEF Working Papers 515, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    6. Heijdra, Ben J. & Ligthart, Jenny E., 2007. "Fiscal policy, monopolistic competition, and finite lives," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 325-359, January.
    7. Petrakis, Emmanuel & Manasakis, C. & Cabolis, C. & Moreno, Diego, 2016. "R&D investments fostering horizontal mergers," UC3M Working papers. Economics 23280, Universidad Carlos III de Madrid. Departamento de Economía.
    8. Le Pape, Nicolas & Zhao, Kai, 2014. "Horizontal mergers and uncertainty," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-31.
    9. Emilie Dargaud, 2013. "Horizontal mergers, efficiency gains and remedies," European Journal of Law and Economics, Springer, vol. 36(2), pages 349-372, October.
    10. Choné, Philippe & Linnemer, Laurent, 2020. "Linear demand systems for differentiated goods: Overview and user’s guide," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    11. 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.
    12. Yan He & Yung-ho Chiu & Bin Zhang, 2020. "Prevaluating Technical Efficiency Gains From Potential Mergers and Acquisitions in China’s Coal Industry," SAGE Open, , vol. 10(3), pages 21582440209, July.
    13. Kojun Hamada, 2012. "Uncertainty and Horizontal Mergers," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 252-265, June.
    14. Amir, Rabah & Erickson, Philip & Jin, Jim, 2017. "On the microeconomic foundations of linear demand for differentiated products," Journal of Economic Theory, Elsevier, vol. 169(C), pages 641-665.

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    More about this item

    Keywords

    merger analysis; antitrust; efficiency gains; uncertainty;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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