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Assessing Horizontal Mergers under Uncertain Efficiency Gains

  • 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
Date of revision:
Handle: RePEc:crs:wpaper:2006-06
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  1. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  2. Banal-Estanol, Albert, 2007. "Information-sharing implications of horizontal mergers," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 31-49, February.
  3. Heidhues, Paul & Lagerlöf, Johan N. M., 2003. "On the Desirability of an Efficiency Defense in Merger Control," CEPR Discussion Papers 3841, C.E.P.R. Discussion Papers.
  4. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
  5. AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2003. "Merger performance under uncertain efficiency gains," CORE Discussion Papers 2003038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
  8. Fabio Panetta & Dario Focarelli, 2003. "Are Mergers Beneficial to Consumers? Evidence from the Italian Market for Bank Deposits," CEIS Research Paper 10, Tor Vergata University, CEIS.
  9. Spector, David, 2003. "Horizontal mergers, entry, and efficiency defences," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1591-1600, December.
  10. Stennek, Johan, 1999. "The expected consumer's surplus as a welfare measure," Journal of Public Economics, Elsevier, vol. 73(2), pages 265-288, August.
  11. 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 409-13, December.
  12. Baker, Jonathan B & Rubinfeld, Daniel L, 1999. "Empirical Methods in Antitrust Litigation: Review and Critique," American Law and Economics Review, Oxford University Press, vol. 1(1-2), pages 386-435, Fall.
  13. Pinkse, Joris & Slade, Margaret E., 2004. "Mergers, brand competition, and the price of a pint," European Economic Review, Elsevier, vol. 48(3), pages 617-643, June.
  14. 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.
  15. Werden, Gregory J & Froeb, Luke M, 1998. "The Entry-Inducing Effects of Horizontal Mergers: An Exploratory Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 525-43, December.
  16. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  17. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  18. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
  19. Damien J. NEVEN & Lars-Hendrik RÖLLER, 2000. "Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.24, Université de Lausanne, Faculté des HEC, DEEP.
  20. Turnovsky, Stephen J & Shalit, Haim & Schmitz, Andrew, 1980. "Consumer's Surplus, Price Instability, and Consumer Welfare," Econometrica, Econometric Society, vol. 48(1), pages 135-52, January.
  21. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(1), pages 1-29, April.
  22. Farrell, J. & Shapiro, C., 1988. "Horizontal Mergers: An Equilibrium Analysis," Papers 17, Princeton, Woodrow Wilson School - Discussion Paper.
  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.
  24. Froeb, Luke & Tschantz, Steven & Werden, Gregory J., 2005. "Pass-through rates and the price effects of mergers," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 703-715, December.
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