Antitrust & Competition Policy Blog

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

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Friday, January 28, 2011

Preventing Merger Unilateral Effects: A Nash-Cournot Approach to Asset Divestitures

Posted by D. Daniel Sokol

Patrice Bougette, Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG), Université de Montpellier 1 explores Preventing Merger Unilateral Effects: A Nash-Cournot Approach to Asset Divestitures.

ABSTRACT: This paper aims to analyze the effectiveness of asset transfers in preventing unilateral effects of a merger. We show that asset divestitures allow the remedying of certain price increases. Market size negatively impacts the scope of the divestiture package, while the number of merging firms increases with it. In spite of the required asset sale, parties’ profitability remains ensured in most cases. Buyers always make profit from their purchase if industry fixed costs are rather low. We also add the alternative of a second buyer and compare outcomes with both consumer and welfare standards. Furthermore, as many mergers lead to efficiency gains, we integrate specific cost synergies and show that the higher the synergies, the smaller the divestiture share. In the case when no buyers are available, we show that the option of divesting to a start-up entity is bound to fail if firms’ technology remains the same. Lastly, we find that product differentiation can reduce the efficiency of the asset transfer.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/01/preventing-merger-unilateral-effects-a-nash-cournot-approach-to-asset-divestitures.html

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Comments

difficult to understand. i hope it will be described with easier sentences.

Posted by: racing games | Feb 2, 2011 6:08:04 PM

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