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Assessing Horizontal Mergers under Uncertain Efficiency Gains

Listed author(s):
  • Philippe Choné

    (Crest)

  • Laurent Linnemer

    (Crest)

The analysis of horizontal mergers hinges on a tradeoff between unilateral effectsand efficiency gains. The article examines the role of uncertainty (on theefficiency gains) in this tradeoff. Common wisdom is that the antitrust authoritiesshould be very cautious about random gains. Our results show thatdismissing efficiency gains on the sole ground that they are uncertain would notbe theoretically founded. Indeed, the attitude towards uncertainty depends onthe curvature of the social objective function. We exhibit a number of situationswhere the objective is convex in the efficiency gains, implying that competitionauthorities should welcome the risk for a given expectation of efficiency gains.Implications for empirical merger analysis are exposed.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2006-06.

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Length: 33
Date of creation: 2006
Handle: RePEc:crs:wpaper:2006-06
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  20. Ivaldi, Marc & Verboven, Frank, 2005. "Quantifying the effects from horizontal mergers in European competition policy," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 669-691, December.
  21. Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-426, October.
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