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On efficiency, concentration and welfare

  • BOCCARD, Nicolas

The welfare impact of a merger involves the market power offense and the efficiency defense. Salant et al. (1983) show that mergers among symmetric firms are unprofitable except for monopolization. We characterize the limit to this merger paradox in a simple linear Cournot oligopoly with asymmetric costs. Farrell and Shapiro (1990) provide sufficient conditions for a profitable merger to increase welfare but leave open whether it exists. We characterize the degree of cost asymmetry making a merger both profitable and socially desirable. Comparing rationalization and synergy within the efficiency defense, we show that for most industry structures, a rationalization merger is more likely to be welfare enhancing but a synergy merger is more likely to be profitable.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009040.

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Date of creation: 01 May 2009
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Handle: RePEc:cor:louvco:2009040
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  1. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  2. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
  3. William E. Kovacic & Carl Shapiro, 2003. "Antitrust Policy: A Century of Economic and Legal Thinking," Law and Economics 0303006, EconWPA.
  4. Steffen Huck & Kai A. Konrad & Wieland Müller, 2004. "Profitable Horizontal Mergers without Cost Advantages: The Role of Internal Organization, Information and Market Structure," Economica, London School of Economics and Political Science, vol. 71(284), pages 575-587, November.
  5. Motta, Massimo & Vasconcelos, Helder, 2005. "Efficiency gains and myopic antitrust authority in a dynamic merger game," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 777-801, December.
  6. Steven Heubeck & Donald J. Smythe & Jingang Zhao, 2006. "A Note on the Welfare Effects of Horizontal Mergers in Asymmetric Linear Oligopolies," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 29-47, May.
  7. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
  8. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
  9. Martin Pesendorfer, 1998. "Horizontal Mergers in the Paper Industry," NBER Working Papers 6751, National Bureau of Economic Research, Inc.
  10. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Competition Policy Center, Working Paper Series qt8v1500b8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  11. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  12. Neary, J. Peter, 2004. "Cross-Border Mergers as Instruments of Comparative Advantage," Center for European, Governance and Economic Development Research Discussion Papers 34, University of Goettingen, Department of Economics.
  13. Clarke, Roger & Davies, Stephen W, 1982. "Market Structure and Price-Cost Margins," Economica, London School of Economics and Political Science, vol. 49(195), pages 277-87, August.
  14. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
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  16. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003. "The effects of mergers: an international comparison," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 625-653, May.
  17. Spector, David, 2002. "Horizontal mergers, entry, and efficiency defences," CEPREMAP Working Papers (Couverture Orange) 0206, CEPREMAP.
  18. Klaus Gugler & Ralph Siebert, 2007. "Market Power versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry," The Review of Economics and Statistics, MIT Press, vol. 89(4), pages 645-659, November.
  19. Hassan Benchekroun & Amrita Ray Chaudhuri, 2006. "Trade Liberalization and the Profitability of Mergers: a Global Analysis," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 941-957, November.
  20. Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-37, December.
  21. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
  22. Sam Peltzman, 1977. "The Gains and Losses From Industrial Concentration," NBER Working Papers 0163, National Bureau of Economic Research, Inc.
  23. Banal-Estanol, Albert & Macho-Stadler, Ines & Seldeslachts, Jo, 2008. "Endogenous mergers and endogenous efficiency gains: The efficiency defence revisited," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 69-91, January.
  24. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
  25. Whinston, Michael D., 2007. "Antitrust Policy toward Horizontal Mergers," Handbook of Industrial Organization, Elsevier.
  26. Levin, Dan, 1990. "Horizontal Mergers: The 50-Percent Benchmark," American Economic Review, American Economic Association, vol. 80(5), pages 1238-45, December.
  27. Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 465-499.
  28. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
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