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The attempted merger between General Electric and Honeywell, a case study of transatlantic conflict



\cf1\f1 This paper analyzes how State aid affects and distorts competition and trade within and across jurisdictions. We identify the circumstances in which state aid is likely to involve the largest distortions. In the context of the paper distortion of competition" is interpreted as the effect on rivals\f2\rquote\f1 profits. We consider three types of state intervention, namely subsidies which affect marginal cost, entry and quality and analyse whether particular market characteristics are robust indicators of the magnitude of the distortions. We obtain the following results: (i) it appears that concentration is a fairly robust indicator; (ii) A high degree of substitution across differentiated products is not a robust indicator of the magnitude of the distortions. Its effect depends on the type of state intervention; (iii) The substitution among domestic products may have opposite effects respectively on domestic and foreign firms. In particular, when the market is not concentrated and state aid takes the form of a production subsidy, a stronger substitution among domestic products will reduce the distortions felt by the foreign firm (but increase that felt by domestic rivals); Finally, (iv) the paper demonstrates that the impact of selective State aid on market prices and competitors can depend on the particular characteristics of the market JEL Classification numbers: K21; L10; L40

Suggested Citation

  • Jose-Antonio Garcia; Damien Neven, 2005. "The attempted merger between General Electric and Honeywell, a case study of transatlantic conflict," IHEID Working Papers 06-2005, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp06-2005

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    References listed on IDEAS

    1. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2007. "The Political Economy of European Merger Control: Evidence using Stock Market Data," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 455-489.
    2. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, May.
    3. Damien Neven, 2002. "Discrepancies Between Markets and Regulators: an Analysis of the First ten Years of EU Merger Control," IHEID Working Papers 10-2002, Economics Section, The Graduate Institute of International Studies.
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    Cited by:

    1. Philipp Schumacher, 2013. "The EU’s flawed assessment of horizontal aspects in GE/Honeywell: re-visiting the last pillar of the European prohibition decision," European Journal of Law and Economics, Springer, vol. 35(2), pages 211-240, April.
    2. Oliver Budzinski & Katharina Wacker, 2007. "The Prohibition Of The Proposed Springer-Prosiebensat.1 Merger: How Much Economics In German Merger Control?," Journal of Competition Law and Economics, Oxford University Press, vol. 3(2), pages 281-306.
    3. Mats Bergman, 2008. "Quis Custodiet Ipsos Custodes? or Measuring and Evaluating the Effectiveness of Competition Enforcement," De Economist, Springer, vol. 156(4), pages 387-409, December.
    4. repec:oup:jcomle:v:1:y:2005:i:3:p:595-633. is not listed on IDEAS

    More about this item


    State aids; EU Antitrust; distortions of competition;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General


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