Efficiencies in Merger Analysis: An Institutionalist View

Abstract

It is well known that an optimal merger policy requires consideration of efficiencies in enforcement decisions. However, as understanding of a market's equilibrium structure is required to integrate the efficiency defense into a merger analysis, efficiency evaluations are controversial. New Institutional Economics further complicates the discussion by highlighting the need to address a range of transaction cost issues. This paper reviews the debate and promotes the application of an institutionally-based business strategy analysis to evaluate both efficiencies and competitive concerns in an integrated framework. In special cases, formal mathematical analysis may be used to balance the two concerns, while in most situations a qualitative presentation will be required. The paper concludes with a discussion of the current state of the efficiency defense and a proposal for the qualitative use of customer opinions to balance competitive concerns with efficiency benefits.

Keywords: Efficiencies,Mergers,New Institutional Economics,Business Strategy, Buyer Sophistication, Williamson Tradeoff

JEL Classification: k21,l14,l40