EFFICIENCY GAINS AND STRUCTURAL REMEDIES IN MERGER CONTROL*

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. From a merger policy perspective, this paper's main contribution is two‐fold. First, it shows that if mergers do not involve all firms in the industry, then merger remedies help the AA to increase consumer surplus only if assets are divested to competitors already in the market. Second, it presents a model which clarifies that there can only exist social costs to ‘over‐fixing’ the anticompetitive effects of a merger if merger review policy treats mergers as one‐time events. When a more dynamic view is taken of sequential merger review, then there can never be an ‘over‐fixing’ problem. In this case, however, remedies are shown to be needed to make myopic merger review optimal.     

The efficiencies defense and commercial bank merger regulation

A binomial probit model is used to estimate the Board of Governors' commercial bank merger policy during the pre-deregulation era from 1963 to 1980. The Board's merger policy is shown to be consistent with a ‘Williamsonian’ efficiencies policy. This contrasts with the merger antitrust environment of the time in which merger-induced efficiencies were not considered. The results also suggest that the Board was influenced by the empirical cost studies of the time.     

The Tenacity of Antitrust Mythology: Dissenting from Mueller

This comment registers the author's reservations about Professor D.C. Mueller's proposals for revising federal merger policy and about the arguments that he advances in support of them. The comment especially questions the validity of the practice of using concentration data as the basis for inferring the presence or absence of monopoly power. It is argued that the analytical foundation for this practice is non-existent and that the purely statistical foundation is weak. The author finds persuasive Mueller's argument that, in recent decades, the merger activity of large firms has done little or nothing to increase the efficiency of the American economy. He believes that, right or wrong, what drives antitrust is fear of corporate size and power, not fear of textbook monopoly. Therefore, he believes consideration should be given to Mueller's proposal that the ambitious merger projects of large firms should not be allowed to go forward unless they promise some gain in efficiency.     

Merger law,policy, and enforcement guidelines in Canada

The paper describes Canada's merger law, policy, and enforcement activity. The contents of Canada's recently issuedMerger Enforcement Guidelines are explained, analyzed, and compared to the U.S. Merger Guidelines. The roles of concentration, market share, entry conditions, and efficiency defenses in Canadian merger cases are assessed. Reference is made to some recent decisions of Canada's Competition Tribunal, a body created as a part of the major competition policy reforms contained in the 1986 Competition Act.     

Conglomerate mergers and subsequent industry effects

The focus of most studies of conglomerate mergers has been on the effects on companies involved. Of more direct relevance to antitrust policy is the question of industry effects of this type of merger. This article looks at eleven cases of “large firm/leading firm” conglomerate mergers completed between 1958 and 1970 and examines census data to see if structure or performance of the acquired “leading firm's” market was altered due to the merger. The results suggest that industry structure is not significantly affected, but that there may be adverse performance effects when the acquired firm is a leader in an unconcentrated market with substantial entry barriers.     

Network effects and merger analysis: instant messaging and the AOL–Time Warner case

The AOL–Time Warner merger, announced in January 2000, was and still is the largest merger ever consummated. The merger plan was submitted to the FTC for antitrust review and to the FCC for license transfer review. The FTC approved the merger with conditions relating to open access. The FCC approved the merger subject to a condition (among others) that mandated interoperability for future (but not present) generations of AOL's popular instant messaging (IM) service, based on the potential leveraging of merger assets together with current IM network effects into market power in next-generation IM services. This condition was controversial and represents a new departure in antitrust analysis for industries imbued with network effects. This paper analyzes AOL's IM service and the ability to leverage merger assets into future market power in the context of the FCC condition; counter-arguments are considered and larger lessons for “new economy” antitrust are drawn from this experience and analysis.     

Early Settlement in European Merger Control

We analyse the determinants of early settlement between merging parties and the European Commission over remedies that remove concerns of anticompetitive effects. This extends the previously narrow range of econometric literature on early settlement. Consistent with the theory of early settlement, our results confirm the importance of delay costs and of uncertainty, measured by the complexity of the economic analysis required for each merger. We also find a non‐monotonic effect of agency resourcing, which raises questions about the Commission's efficiency in times of high case load. Econometrically, we select a sample of merger decisions in which the European Commission intervened due to concerns of anticompetitive effects, and our selection model provides estimates of the factors determining intervention by the Commission. Conclusions are drawn for public policy.     

Predicting who stays and leaves after an acquisition: a study of top managers in multinational firms

This study adds to current explanations of executive fate following a merger or acquisition by examining how executives' perceptions of merger events determine whether they stay or leave. Results indicate that executives' perceptions of the merger announcement, interactions with the acquiring firm's top managers following the merger, and long-term effects of the merger significantly influenced their decision to stay or leave. These perceptions could be used to correctly distinguish between stayers and leavers in almost 80 percent of the cases. In addition, perceptions created when the target company was acquired by a foreign multinational made it more likely that the executive would leave. This finding demonstrates that foreignness continues to be an important determinant of executive perceptions in cross-national mergers and acquisitions. Copyright © 2001 John Wiley & Sons, Ltd.     

Comment on “Merger Policy in the United States”

This paper comments briefly on a merger policy article by Dennis Mueller. It concurs with Mueller's judgment that X-efficiency consequences are of crucial relevance in developing a sound antitrust policy toward mergers. It agrees also that firms proposing mergers overstepping structural guidelines should be permitted an efficiencies defense, but it stresses the difficulties of making ex ante efficiency predictions.     

Comment on Dewey's “Merger Policy Greatly Simplified/Building on Keyes”

Professor Dewey's mock proposal for a new merger policy differs from Keyes' serious proposal in at least two important respects. First, the Dewey plan would accord different treatment to mergers which result in the growth of “large” industrial companies as compared with mergers which do not. No such size discrimination is recommended by Keyes. Second, the Dewey plan would allow even the former class of mergers to go forward after passing a purely procedural “test”. No genuine “efficiencies defense” would be required.     

An equilibrium approach to international merger policy

I treat international merger policy as a repeated veto game. I show that there exists a unique efficient equilibrium within a particular class of trigger strategy equilibria. I then consider a series of comparative statics and extensions: (a) if for some exogenous reason one of the countries becomes more lenient towards mergers, than the other country becomes more lenient as well; (b) merger remedies increase the probability that a merger is approved and increase total welfare; (c) the effects of a merger wave are magnified by the equilibrium approval policy.     

Merger policy greatly simplified: Building on keyes

This comment urges a recognition of the fact that the main goal of antitrust, as revealed in a century of consequences, is not economic efficiency or consumer protection but the dispersion of power and decision-making in the business world. Building on Lucile S. Keyes' proposal for improving merger guidelines, it argues that the “true” aims of merger policy can be more efficiently pursued by disallowing all mergers involving very large firms that cannot be justified on efficiency grounds and ignoring mergers involving all other firms.     

Efficiencies,market power and horizontal merger

In June 1982 the Justice Department issued itsMerger Guidelines which specify in terms of the Herfindahl index (H) what combinations of merger size and post-merger H are likely to lead to a merger challenge. This paper assesses theseGuidelines using Williamson's (1968) well-known model in which an optimal merger policy is viewed as one that considers both the price and cost consequences of merger. The Williamson model is recast in terms of H and changes in H and linked to theGuidelines. This allows an assessment of the welfare congequences of an industry merger for any given level of concentration and merger-produce changes in concentration. Among the conclusions are that, consistent with theGuidelines, higher values of H make socially successful mergers less likely, and a more appropriate, if perhaps not more feasible, focus for theGuidelines are coordination adjusted measures of concentration and merger size.     

Welfare Analysis of Regulating Mobile Termination Rates in the U.K.

We develop a calibrated simulation model of the U.K. mobile telephony market and use it to analyze the effects of reducing mobile termination rates (MTR's) as recommended by the European Commission. We find that reducing MTR's is likely to increase both consumer surplus and networks' profits. Depending on the strength of call externalities (i.e., benefits to the recipient of a call), social welfare may increase by as much as £1 billion to £4.6 billion per year. We also use the model to estimate the welfare effects of the 2010 merger between Orange and T‐Mobile and find that the merger led to a substantial reduction in consumer surplus.     

ON THE ANTICOMPETITIVE EFFECT OF EXCLUSIVE DEALING WHEN ENTRY BY MERGER IS POSSIBLE*

We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive dealing can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance of exclusivity. Third, despite allowing the more efficient technology to find its way into the industry, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal and (ii) it may deter entry altogether.     

Ten years of Merger Guidelines: A retrospective,critique, and prediction

The period since the 1982 Merger Guidelines is surveyed and assessed, including the 1992 Merger Guidelines. The 1982 Guidelines were an improvement in economic underpinnings and in merger policy, but the Guidelines' focus on short run market power is not a sensible basis for merger policy. The 1992 Guidelines continue this focus on short run market power, attempt to provide some clarifications of current enforcement policy, but add some questionable economics to the stew. The merger policy laid out in the 1992 Guidelines will not survive, since it does not suitably come to grips with the fundamental bases of the social costs and benefits of mergers and ignores ‘competitiveness’ issues.     

Collusion Under Imperfect Monitoring with Asymmetric Firms

We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms’ sales and prices are private information. We show that all firms can infer when at least one firm's sales are below some firm‐specific ‘trigger level.’ When firms use this public information to monitor the collusive agreement, price wars may occur on the equilibrium path. Symmetry facilitates collusion but, if price wars are sufficiently long, then the optimal collusive prices of symmetric capacity distributions are lower on average than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.     

Merger efficiency gains: Evidence from a large transport merger in france

Many industries are seeing an increase in concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. The policy debate shows that one of the key arguments put forward when supporting potential mergers is the possibility of realization of merger efficiency gains, specifically in the transport industry. Yet, there exists little empirical evidence on the actual effects of realized mergers on cost efficiencies. We exploit a large and highly debated merger that took place in the French transport industry to evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. We exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger on operating costs of merging transport groups. Our results show that, no matter the specification considered, we cannot conclude that the merger resulted in any merger specific efficiency gains for the merging parties. Our study relies on the use of several control groups and is robust to a great number of robustness checks as well as to the introduction of heterogeneous treatment effects, depending on the identity of the merging party, as well as the closeness of competition of local operators. Overall, our study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced.     

POST‐MERGER PRODUCT REPOSITIONING*

This paper analyzes the effects of mergers between firms competing by simultaneously choosing price and location. Products combined by a merger are repositioned away from each other to reduce cannibalization, and non‐merging substitutes are, in response, repositioned between the merged products. This repositioning greatly reduces the merged firm's incentive to raise prices and thus substantially mitigates the anticompetitive effects of the merger. Computation of, and selection among, equilibria is done with a novel technique known as the stochastic response dynamic, which does not require the computation of first‐order conditions.     

U.S. merger policy and the 1992 Merger Guidelines

This article reviews the empirical evidence regarding the effects of mergers on corporate efficiency. In light of this evidence it then evaluates the effectiveness of U.S. merger policy as articulated in the 1992 Guidelines of the Department of Justice. It argues that the 1992 Guidelines and the U.S. Government's policies toward business more generally over the past 12 years have been characterized by a bias for bigness. It concludes that this bias will only be eliminated when government authorities in charge of merger policy recognize that many mergers lower economic efficiency and design and enforce their policies accordingly.