Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
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Levin College of Law

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Friday, May 16, 2014

Uncertain Efficiency Gains and Merger Policy

Mariana Cunha (FEP-UP, School of Economics and Management, University of Porto), Paula Sarmento (FEP-UP, CEF-UP), and Helder Vasconcelos (FEP-UP, CEF-UP, CEPR) study Uncertain Efficiency Gains and Merger Policy.

ABSTRACT: This paper studies the role of uncertainty in merger control and in merger decisions. In a Cournot setting, we consider that mergers may give rise to uncertain endogenous efficiency gains and that every merger has to be submitted for approval to the Antitrust Authority (AA). We assume that both the AA and the firms in the industry face the same uncertainty about the future efficiency gains induced by the merger. It is shown that an increase in the degree of uncertainty benefits both insider and outsider firms but also the consumers. Further, when uncertainty is high, there is a greater likelihood that firms propose a merger to the AA and that the AA accepts it. Interestingly, however, although uncertainty enhances merger approval chances, it also decreases merger's stability, by increasing outsiders' incentives to free-ride on it.

http://lawprofessors.typepad.com/antitrustprof_blog/2014/05/uncertain-efficiency-gains-and-merger-policy.html

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