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Merger Policy with Alternative Mergers and Efficiency Gains

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Abstract

This paper models the behaviour of a Competition Authority (CA) that takes into consideration alternative future mergers when deciding whether to approve a current merger notification. The result is a more stringent CA that demands higher merger-efficiencies than the ones needed to restore pre-merger welfare, opening the possibility of challenging a merger that reduces prices. However, in the absence of entry and exit, a merger policy that considers alternative mergers is never consumer welfare decreasing. Additionally, CA’s merger-efficiencies expectations play an important role in the stance the CA adopts (tougher or laxer). Lastly, the paper suggests that even when alternative mergers could have positive effects on consumer welfare, CAs should exercise caution in adopting such merger policy given the significant side-effects.

Suggested Citation

  • Razo, Carlos, 2004. "Merger Policy with Alternative Mergers and Efficiency Gains," Research Papers in Economics 2004:9, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2004_0009
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    1. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, pages 1232-1248.
    2. French, Kenneth R. & Poterba, James M., 1991. "Were Japanese stock prices too high?," Journal of Financial Economics, Elsevier, pages 337-363.
    3. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    4. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, pages 127-142.
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    More about this item

    Keywords

    competition policy; mergers; efficiency gains;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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