Confronting Consummated Mergers: An Inquiry into Policy and Practice

Abstract

Antitrust policy toward consummated mergers that prove to be anticompetitive poses difficult policy choices. Divestitures often seem impractical and conduct remedies are of questionable effectiveness, resulting in many such mergers remaining unaddressed. This paper provides both theory on optimal policy and empirical evidence regarding the adequacy of current practice. Theory analyzes the balance between ex ante and ex post enforcement, highlighting the tradeoff between added information versus added enforcement costs from reliance on ex post policy. We then examine a novel data base of consummated mergers in the U.S., with information on the frequency and nature of postmerger actions by the antitrust agencies. It finds that, of 48 consummated mergers in the past twenty years, divested assets survive in the relevant industry in barely half of cases, implying a yet more modest rate of competitive impact. Together with other findings, we conclude not only that postmerger policies need to be strengthened, but that premerger review should err on the side of stronger enforcement rather than permissiveness.

Keywords: Mergers, Antitrust policy, Remedies, Ex ante enforcement, Ex post enforcement, Break up

JEL Classification: G34, K21, L40