Can No Antitrust Policy Be Better than Some Antitrust Policy?

Abstract

Partial antitrust policy may lead to less competitive market structures than the total absence of such policy. There may sometimes even be a case for the government providing incentives for particular forms of merger.

Mattoo examines how the market structure is likely to evolve where there is multistage oligopolistic production - and what the implications of this are for antitrust policy.

Mattoo treats the decision to merge across or within stages of production as endogenous. He shows that when firms at a particular stage of production are relatively dominant, simultaneous merger decisions are conducive to competitive vertically integrated outcomes, while sequential decisions are not.

The persistence of nonintegrated market structures may be explained by the existence of equally dominant firms that make merger decisions sequentially. The credible threat of retaliatory merger may deter both socially desirable and undesirable forms of merger.

What implications do Mattoo's findings have for antitrust policymakers? For one thing, partial antitrust policy may lead to less competitive market structures than the total absence of such policy, because policy barriers to horizontal mergers only at a particular stage of production eliminate the deterrent effect of retaliatory merger. For example, if the two stages of production are located in countries with different antitrust legislation, a policy that protects consumers from domestic mergers may ultimately hurt them by rendering foreign mergers more attractive.

When the equilibrium market structure does not contain socially undesirable mergers, there is no need for antitrust (or competition) policy. Moreover, there may sometimes be a case for the government actually providing supplementary incentives to encourage particular forms of merger - as, for instance, when the threat of retaliatory merger deters socially desirable vertical mergers.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to examine the links between trade and regulatory policy. The author may be contacted at [e-mail].