To Merge or to License: Implications of Information Sharing for Optimal Merger Policy

Posted by D. Daniel Sokol

Shiou Shieh, National Taipei University - Department of Economics, Chi-Fei Huang, National Taipei University, and Hsiao-Chi Chen, National Taipei University - Department of Economics discuss To Merge or to License: Implications of Information Sharing for Optimal Merger Policy.

ABSTRACT: We investigate the antitrust authority's optimal merger policy in a duopoly model with cost asymmetry and asymmetric information regarding uncertain demand. Technology can be transferred either through a merger or a license, while market information is shared only through a merger. We show that the optimal merger policy differs under Cournot and Bertrand competition. If firms compete in Bertrand fashion, then mergers should never be allowed. If firms compete in Cournot fashion, then mergers are permitted if market volatility is high or if volatility is in the intermediate range and the size of innovations is large enough.