The Merger Paradox, Collusion and Competition Policy
64 Pages Posted: 16 Nov 2018 Last revised: 6 Apr 2020
Date Written: October 25, 2018
This paper develops a model that formalizes several connections between mergers, collusion and competition policy. In equilibrium, firms may merge to make collusion sustainable when it cannot be sustained with the original set of firms. A rise in the probability of detecting and prosecuting collusion could induce a wave of mergers, so firms can sustain collusion again. Indeed, mergers could fully neutralize the pro-competitive effect of an improvement in collusion detection and prosecution. From a normative perspective, we show that merger policy is crucial when cost synergies are small (or nonexistent) and the competition authority can only deter collusion by restricting mergers. Finally, we highlight that mergers could be more harmful (less beneficial) than expected if the impact that mergers have on the competition regime is properly considered, which suggests a decomposition of the welfare impact of mergers into unilateral and coordinated effects.
Keywords: collusion, mergers, antitrust policy, unilateral and coordinated effects
JEL Classification: D43, L12, L13, L41
Suggested Citation: Suggested Citation