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An equilibrium analysis of efficiency gains from mergers

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  • Jovanovic, Dragan
  • Wey, Christian

Abstract

We analyze the efficiency defense in merger control. First, we show that the relationship between exogenous efficiency gains and social welfare can be non-monotone. Second, we consider both endogenous mergers and endogenous efficiencies and find that merger proposals are largely aligned with a proper social welfare analysis which explicitly considers the without merger counterfactual. We demonstrate that the merger specificity requirement does not help much to select socially desirable mergers; to the contrary, it may frustrate desirable mergers inducing firms not to claim efficiencies at all.

Suggested Citation

  • Jovanovic, Dragan & Wey, Christian, 2012. "An equilibrium analysis of efficiency gains from mergers," DICE Discussion Papers 64, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:64
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    File URL: https://www.econstor.eu/bitstream/10419/60470/1/720815673.pdf
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    References listed on IDEAS

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    1. Amir, Rabah & Diamantoudi, Effrosyni & Xue, Licun, 2009. "Merger performance under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 264-273, March.
    2. Cheung, Francis K., 1992. "Two remarks on the equilibrium analysis of horizontal merger," Economics Letters, Elsevier, vol. 40(1), pages 119-123, September.
    3. Lagerlof, Johan N.M. & Heidhues, Paul, 2005. "On the desirability of an efficiency defense in merger control," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 803-827, December.
    4. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, December.
    5. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, pages 107-126.
    6. Joseph Farrell and Carl Shapiro., 2000. "Scale Economies and Synergies in Horizontal Merger Analysis," Economics Working Papers E00-291, University of California at Berkeley.
    7. Motta, Massimo & Vasconcelos, Helder, 2005. "Efficiency gains and myopic antitrust authority in a dynamic merger game," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 777-801, December.
    8. Volker Nocke & Michael D. Whinston, 2010. "Dynamic Merger Review," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1201-1251.
    9. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(1), pages 1-29, April.
    10. Fabienne Ilzkovitz & Roderick Meiklejohn, 2006. "European Merger Control: Do We Need an Efficiency Defence?," Chapters,in: European Merger Control, chapter 2 Edward Elgar Publishing.
    11. Dalia Marin & Monika Schnitzer, 1998. "Economic incentives and international trade," European Economic Review, Elsevier, pages 705-716.
    12. Neven, Damien J. & Roller, Lars-Hendrik, 2005. "Consumer surplus vs. welfare standard in a political economy model of merger control," International Journal of Industrial Organization, Elsevier, pages 829-848.
    13. 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.
    14. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November.
    15. 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.
    16. Bergman, Mats A. & Jakobsson, Maria & Razo, Carlos, 2005. "An econometric analysis of the European Commission's merger decisions," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 717-737, December.
    17. Banal-Estanol, Albert & Macho-Stadler, Ines & Seldeslachts, Jo, 2008. "Endogenous mergers and endogenous efficiency gains: The efficiency defence revisited," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 69-91, January.
    18. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-187, June.
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    Cited by:

    1. Jeremiah Harris & Ralph Siebert, 2015. "Driven by the Discount Factor: Impact of Mergers on Market Performance in the Semiconductor Industry," CESifo Working Paper Series 5199, CESifo Group Munich.
    2. Jovanovic, Dragan, 2013. "Mergers, managerial incentives, and efficiencies," DICE Discussion Papers 88, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Jovanovic, Dragan & Wey, Christian, 2014. "Passive partial ownership, sneaky takeovers, and merger control," Economics Letters, Elsevier, vol. 125(1), pages 32-35.
    4. Zhiqi Chen & Gang Li, 2017. "Do Merger Efficiencies Always Mitigate Price Increases?," Carleton Economic Papers 17-02, Carleton University, Department of Economics.
    5. Mariana Cunha & Paula Sarmento & Hélder Vasconcelos, 2014. "Uncertain Efficiency Gains and Merger Policy," FEP Working Papers 527, Universidade do Porto, Faculdade de Economia do Porto.
    6. repec:eee:indorg:v:53:y:2017:i:c:p:32-62 is not listed on IDEAS

    More about this item

    Keywords

    Horizontal Mergers; Efficiency Defense; Merger Specific Efficiencies;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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