DP6093 Efficiency Gains and Structural Remedies in Merger Control

Author(s): Helder Vasconcelos
Publication Date: February 2007
Keyword(s): efficiency gains, endogenous mergers, failing firm defence., merger remedies
JEL(s): D43, L13, L41, L51
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6093

This paper studies the role of structural remedies in merger control in a Cournot setting where (endogenous) mergers are motivated by prospective efficiency gains and must be submitted to an Antitrust Authority (AA) which might require partial divestiture for approval. Both positive and negative effects of merger remedies are identified. First, structural remedies create new merger opportunities to firms. Second, when divestitures are required, the AA over-fixes, i.e., goes beyond the recreation of the level of competition that existed prior to the transaction. Finally, by insisting in over-fixing, the AA may discourage firms to look for more efficient mergers, inducing a final outcome where consumers' surplus is lower than if divestitures couldn't be required. Overall, however, structural remedies are shown to be good: consumers' surplus ex-ante is higher with than without remedies.