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On the Desirability of an Efficiency Defense in Merger Control

We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority’s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.

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Paper provided by Department of Economics, Royal Holloway University of London in its series Royal Holloway, University of London: Discussion Papers in Economics with number 04/24.

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Length: 38 pages
Date of creation: Oct 2004
Date of revision: Oct 2004
Handle: RePEc:hol:holodi:0424
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  13. Joseph Farrell and Carl Shapiro., 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Economics Working Papers E00-291, University of California at Berkeley.
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  16. Song Shin, H, 1996. "Adversarial and Inquisitorial Procedures in Arbitration," Economics Papers 124, Economics Group, Nuffield College, University of Oxford.
  17. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
  18. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-83, December.
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