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Horizontal mergers and uncertainty

  • Le Pape, Nicolas
  • Zhao, Kai

Some path-breaking work on mergers takes efficiency gains for granted, or assumes that firms have perfect knowledge when taking merger decisions. In practice, firms and competition authorities cannot know exact future efficiency gains, prior to merger consummation. This paper analyzes horizontal mergers when the output decision-making process is sequential. A key assumption is that mergers create uncertainty on productivity and informational asymmetry between firms. The paper also studies whether the merged firm has interest to reveal the information about its own cost to competing firms. In terms of Merger Approval, the paper emphasizes the timing of regulatory intervention and distinguishes two different merger control interventions (ex ante or ex post enforcement). Since prudent competition authorities (using ex ante intervention) should take the restrictive policy, the framework illustrates why US Horizontal Merger Guidelines and EC Merger Regulation are biased in favor of the consumers' interests.

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Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2013-62.

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Date of creation: 2013
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Handle: RePEc:zbw:ifwedp:201362
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  1. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
  2. Kenneth Heyer, 2006. "Welfare Standards and Merger Analysis: Why not the Best?," EAG Discussions Papers 200608, Department of Justice, Antitrust Division.
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  4. Ottaviani, Marco & Wickelgren, Abraham L., 2011. "Ex ante or ex post competition policy? A progress report," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 356-359, May.
  5. Thierry PÉNARD & Saïd SOUAM, 2002. "Collusion et politique de la concurrence en information asymétrique," Annales d'Economie et de Statistique, ENSAE, issue 66, pages 209-233.
  6. 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.
  7. Wen Zhou, 2008. "LARGE IS BEAUTIFUL: HORIZONTAL MERGERS FOR BETTER EXPLOITATION OF PRODUCTION SHOCKS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 68-93, 03.
  8. Shapiro, Matthew, 1986. "Capital and saving in a share economy," Journal of Comparative Economics, Elsevier, vol. 10(4), pages 444-447, December.
  9. Besanko, David & Spulber, Daniel F, 1990. "Are Treble Damages Neutral? Sequential Equilibrium and Private Antitrust Enforcement," American Economic Review, American Economic Association, vol. 80(4), pages 870-87, September.
  10. Banal-Estanol, Albert, 2007. "Information-sharing implications of horizontal mergers," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 31-49, February.
  11. Levin, Dan, 1990. "Horizontal Mergers: The 50-Percent Benchmark," American Economic Review, American Economic Association, vol. 80(5), pages 1238-45, December.
  12. Bergès-Sennou, F. & Loss, F. & Malavoti, E. & Vergé, T., 2001. "Competition policy and agreements between firms," Economics Working Paper Archive (Toulouse) 22, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
  13. Philippe Choné & Laurent Linnemer, 2006. "Assessing Horizontal Mergers under Uncertain Efficiency Gains," CESifo Working Paper Series 1726, CESifo Group Munich.
  14. Arup Daripa & Simone Varotto, 2005. "Ex Ante Versus Ex Post Regulation of Bank Capital," Finance 0511009, EconWPA.
  15. Qiu, Larry D. & Zhou, Wen, 2006. "International mergers: Incentives and welfare," Journal of International Economics, Elsevier, vol. 68(1), pages 38-58, January.
  16. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  17. Hennessy, David A., 2000. "Cournot Oligopoly Conditions Under Which Any Horizontal Merger is Profitable," Staff General Research Papers 1699, Iowa State University, Department of Economics.
  18. AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2008. "Merger Performance under Uncertain Efficiency Gains," Cahiers de recherche 09-2008, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  19. Li, Lode., 1985. "Cournot Oligopoly with Information Sharing," Working Papers 561, California Institute of Technology, Division of the Humanities and Social Sciences.
  20. Zhou, Wen, 2008. "Endogenous horizontal mergers under cost uncertainty," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 903-912, July.
  21. Gal-Or, Esther, 1985. "Information Sharing in Oligopoly," Econometrica, Econometric Society, vol. 53(2), pages 329-43, March.
  22. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
  23. Gal-Or, Esther, 1988. "The Informational Advantages or Disadvantages of Horizontal Mergers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 639-61, November.
  24. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
  25. Richard N. Clarke, 1983. "Collusion and the Incentives for Information Sharing," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 383-394, Autumn.
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  27. Steven Shavell, 1984. "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 271-280, Summer.
  28. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
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