Approval Rules for Sequential Horizontal Mergers

CEPR Discussion Paper Series No. 1764

Posted: 13 Jul 1998

Date Written: December 1997

Abstract

Merger approval decisions lie at the heart of competition policies. Farrell and Shapiro (1990) presented a model stating safe harbour rules for merger approval. In the presence of sequential mergers, however, computation of the sufficient external effect criterion for each merger may not be possible as the second merger will be influenced by the equilibrium emerging from the first. If the mergers are close enough in time, the second merger must be evaluated without the knowledge of the equilibrium point after the first merger. Two alternatives are proposed: joint merger evaluation and independent merger evaluation. The decision errors (too many approvals or rejections) are identified for each of the alternative rules. It is shown that joint merger evaluations generate too many rejections of mergers and independent evaluations lead to too many approvals.

JEL Classification: D43, L41, L43

Suggested Citation

Pita Barros, Pedro Luis, Approval Rules for Sequential Horizontal Mergers (December 1997). CEPR Discussion Paper Series No. 1764. Available at SSRN: https://ssrn.com/abstract=107048

Pedro Luis Pita Barros (Contact Author)

Universidade Nova de Lisboa ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+351 21 383 3624 (Phone)
+351 21 388 6073 (Fax)

HOME PAGE: http://ppbarros.fe.unl.pt

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