Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, June 3, 2009

Horizontal Mergers, Involuntary Unemployment, and Welfare

Posted by D. Daniel Sokol

Oliver Budzinski (Environmental and Business Economics - University of Southern Denmark) and Jürgen-Peter Kretschmer (Economic Policy Unit - Philipps-University of Marburg) analyze Horizontal Mergers, Involuntary Unemployment, and Welfare.

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 effect increases welfare by reducing the costs of production (synergies). However, 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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