Horizontal Mergers, Involuntary Unemployment, and Welfare

MAGKS Discussion Paper No. 07-2009

17 Pages Posted: 17 Feb 2009 Last revised: 25 Aug 2009

See all articles by Oliver Budzinski

Oliver Budzinski

Ilmenau University of Technology

Jürgen-Peter Kretschmer

Philipps University Marburg - Department of Business Administration and Economics

Date Written: February 16, 2009

Abstract

Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency effect increases welfare by reducing the costs of production (synergies). However, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed.

Keywords: horizontal mergers, involuntary unemployment, efficiency defense, income feedback effects, Ford effects

JEL Classification: L13, L41, J01, L16

Suggested Citation

Budzinski, Oliver and Kretschmer, Jürgen-Peter, Horizontal Mergers, Involuntary Unemployment, and Welfare (February 16, 2009). MAGKS Discussion Paper No. 07-2009, Available at SSRN: https://ssrn.com/abstract=1344214 or http://dx.doi.org/10.2139/ssrn.1344214

Oliver Budzinski (Contact Author)

Ilmenau University of Technology ( email )

Ilmenau, D-98684
Germany

HOME PAGE: http://www.tu-ilmenau.de/wth

Jürgen-Peter Kretschmer

Philipps University Marburg - Department of Business Administration and Economics ( email )

Am Plan 2
Marburg, 35032
Germany

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