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Assessing Horizontal Mergers under Uncertain Efficiency Gains

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  • Philippe Choné

    (Crest)

  • Laurent Linnemer

    (Crest)

Abstract

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.

Suggested Citation

  • Philippe Choné & Laurent Linnemer, 2006. "Assessing Horizontal Mergers under Uncertain Efficiency Gains," Working Papers 2006-06, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2006-06
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    References listed on IDEAS

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    Citations

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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. Petrakis, Emmanuel & Moreno Ruiz, Diego & Cabolis, C. & Manasakis, C., 2016. "R&D investments fostering horizontal mergers," UC3M Working papers. Economics 23280, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Le Pape, Nicolas & Zhao, Kai, 2014. "Horizontal mergers and uncertainty," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-31.
    7. Emilie Dargaud, 2013. "Horizontal mergers, efficiency gains and remedies," European Journal of Law and Economics, Springer, pages 349-372.
    8. 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.
    9. Raffaele Fiocco & Dongyu Guo, 2015. "Mergers between regulated firms with unknown efficiency gains," Review of Economic Design, Springer;Society for Economic Design, pages 299-326.
    10. Kojun Hamada, 2012. "Uncertainty and Horizontal Mergers," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 252-265, June.

    More about this item

    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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