DP8989 Bargaining failures and merger policy
|Author(s):||Roberto Burguet, Ramon Caminal|
|Publication Date:||May 2012|
|Keyword(s):||bargaining, endogenous mergers, merger policy, synergies|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=8989|
In this paper we study the optimal ex-ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates. We allow for firm asymmetries and, in particular, we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms. The model demonstrates that, under some circumstances, relatively inefficient mergers may take place. That is, a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits. Such bargaining failures have important implications for the ex-ante optimal merger policy. We show that a more stringent policy than the ex-post optimal reduces the scope of these bargaining failures and raises expected consumer surplus. We use a bargaining model that is flexible, in the sense that its strategic structure does not place any exogenous restriction on the dendogenous likelihood of feasible mergers.