Merger Policy with Merger Choice

American Economic Review · 2013 · Volume 103 · Issue 2

Abstract

We analyze the optimal policy of an antitrust authority towards horizontal mergers when merger proposals are endogenous and firms choose among alternative mergers. In our model, the optimal policy of an antitrust authority that seeks to maximize expected consumer surplus imposes a tougher standard on "larger" mergers, i.e., those involving firms with a larger pre-merger market share. The optimal policy is a response to a bias in firms' proposal incentives: firms always propose a larger merger when it is better for consumers than a smaller one, but sometimes will propose the larger one even when it is worse for consumers.

Keywords

Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection, Mergers, Acquisitions, Restructuring, Voting, Proxy Contests, Corporate Governance, Corporate Finance and Governance: Government Policy and Regulation, Antitrust Law, Oligopoly and Other Imperfect Markets, Monopolization, Horizontal Anticompetitive Practices

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