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Horizontal Mergers, Involuntary Unemployment, and Welfare

  • Oliver Budzinski

    ()

    (Department of Environmental and Business Economics, University of Southern Denmark)

  • Jürgen-Peter Kretschmer

    ()

    (Economic Policy Unit, Philipps-University of Marburg, Germany)

Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency ef-fect increases welfare by reducing the costs of production (synergies). How-ever, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed.

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Paper provided by University of Southern Denmark, Department of Environmental and Business Economics in its series Working Papers with number 90/09.

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Length: 35 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:sdk:wpaper:90
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  1. David Margolis, 2006. "Should Employment Authorities Worry About Mergers and Acquisitions ?," Working Papers 2006-03, Centre de Recherche en Economie et Statistique, revised Mar 2006.
  2. Farrell, Joseph & Shapiro, Carl, 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Competition Policy Center, Working Paper Series qt8v1500b8, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  3. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "On monopolistic competition and involuntary unemployment," CORE Discussion Papers RP 909, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Michelle Haynes & Steve Thompson, 1999. "Merger Activity and Employment: Evidence from the UK Mutual Sector," Empirica, Springer, vol. 26(1), pages 39-54, March.
  5. David Margolis, 2006. "Should employment authorities worry about mergers and acquisitions?," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 5(2), pages 167-194, August.
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  8. Wolfgang Kerber, 2009. "Should Competition Law Promote Efficiency? Some Reflections of an Economist on the Normative Foundations of Competition Law," Chapters, in: Economic Theory and Competition Law, chapter 6 Edward Elgar Publishing.
  9. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1989. "Unemployment in an Extended Cournot Oligopoly Model," Oxford Economic Papers, Oxford University Press, vol. 41(3), pages 490-505, July.
  10. Joseph A. Clougherty & Tomaso Duso, 2008. "The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger," CIG Working Papers SP II 2008-17r, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG), revised Feb 2009.
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  12. Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
  13. Kenneth Heyer, 2006. "Welfare Standards and Merger Analysis: Why not the Best?," EAG Discussions Papers 200608, Department of Justice, Antitrust Division.
  14. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, November.
  15. James Brock & Norman Obst, 2009. "Market Concentration, Economic Welfare, and Antitrust Policy," Journal of Industry, Competition and Trade, Springer, vol. 9(1), pages 65-75, March.
  16. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521816632, November.
  17. Oliver Budzinski, 2008. "Monoculture versus diversity in competition economics," Cambridge Journal of Economics, Oxford University Press, vol. 32(2), pages 295-324, March.
  18. K. P. Upadhyaya & F. G. Mixon, 2003. "Merger activity and unemployment in the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 10(11), pages 705-707.
  19. d’ASPREMONT, C. & DOS SANTOS FERREIRA, R. & GERARD-VARET, L.-A., 1984. "Oligopoly and involuntary unemployment," CORE Discussion Papers 1984008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  20. Alberto Behar & James Hodge, 2007. "The employment effects of mergers in a declining industry: the case of South African gold mining," Economics Series Working Papers 335, University of Oxford, Department of Economics.
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  22. Gersbach, Hans, 2000. "Promoting Product Market Competition to Reduce Unemployment in Europe: An Alternative Approach?," Kyklos, Wiley Blackwell, vol. 53(2), pages 117-33.
  23. Ken Heyer, 2006. "Welfare Standards and Merger Analysis: Why Not the Best?," CPI Journal, Competition Policy International, vol. 2.
  24. Paolo Fulghieri & Laurie Simon Hodrick, 2006. "Synergies and Internal Agency Conflicts: The Double-Edged Sword of Mergers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 549-576, 09.
  25. Gugler, Klaus & Yurtoglu, B. Burcin, 2004. "The effects of mergers on company employment in the USA and Europe," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 481-502, April.
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  28. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
  29. Erkki Koskela & Rune Stenbacka, 2005. "Product Market Competition, Profit Sharing and Equilibrium Unemployment," CESifo Working Paper Series 1603, CESifo Group Munich.
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