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How much efficiency gains and price reductions for an efficiency defense? 'Quanto Basta'

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  • Fabrizi, Simona
  • Lippert, Steffen

Abstract

Potential efficiency gains due to a merger can be used by competition authorities to judge upon proposed mergers. In a world where agents’ efforts, observable or unobservable, affect the success of a production cost reducing project that may be conducted as a stand-alone firm or in a merger, we characterize the merger decision and the type of errors a competition authority may make when it relies on an efficiency defense. In addition, we show that the occurrence of either type of errors is always smaller under the unobservable efforts assumption, than under the observable efforts one.

Suggested Citation

  • Fabrizi, Simona & Lippert, Steffen, 2004. "How much efficiency gains and price reductions for an efficiency defense? 'Quanto Basta'," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    • Handle: RePEc:ehu:dfaeii:6750
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    References listed on IDEAS

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    1. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-1367, November.
    2. Joseph Farrell and Carl Shapiro., 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Economics Working Papers E00-291, University of California at Berkeley.
    3. Itoh, Hideshi, 1991. "Incentives to Help in Multi-agent Situations," Econometrica, Econometric Society, vol. 59(3), pages 611-636, May.
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    5. Fabrizi, Simona & Lippert, Steffen, 2004. "Moral Hazard and the Internal Organization of Joint Research," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 18, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    6. repec:ehu:dfaeii:6730 is not listed on IDEAS
    7. Paz Espinosa, Maria & Macho-Stadler, Ines, 2003. "Endogenous formation of competing partnerships with moral hazard," Games and Economic Behavior, Elsevier, vol. 44(1), pages 183-194, July.
    8. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
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    Cited by:

    1. Simona Fabrizi & Steffen Lippert, 2012. "Due Diligence, Research Joint Ventures, and Incentives to Innovate," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(4), pages 588-611, December.

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