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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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  9. S. P. Anderson & A. de Palma & B. Kreider, 1999. "Tax incidence in differentiated product oligopoly," THEMA Working Papers 99-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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  13. 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.
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  15. 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).
  16. 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.
  17. 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.
  18. 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 407-26, October.
  19. Stennek, Johan, 1999. "The expected consumer's surplus as a welfare measure," Journal of Public Economics, Elsevier, vol. 73(2), pages 265-288, August.
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  22. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632, November.
  23. 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.
  24. 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.
  25. 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.
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