The Merger Paradox, Collusion and Competition Policy

64 Pages Posted: 16 Nov 2018 Last revised: 6 Apr 2020

See all articles by Filomena Garcia

Filomena Garcia

Indiana University; ISEG - Technical University of Lisbon; UECE - Research Unit in Economics and Complexity

Jose Manuel Paz y Miño

Catholic University of Uruguay

Gustavo Torrens

Indiana University

Date Written: October 25, 2018

Abstract

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

Garcia, Filomena and Paz y Miño, Jose Manuel and Torrens, Gustavo, The Merger Paradox, Collusion and Competition Policy (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=3273118 or http://dx.doi.org/10.2139/ssrn.3273118

Filomena Garcia

Indiana University ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

ISEG - Technical University of Lisbon ( email )

R. Miguel Lupi, 20
Lisbon, 1200
Portugal

UECE - Research Unit in Economics and Complexity ( email )

Rua Miguel Lupi, 20
Lisboa, 1200-781
Portugal

Jose Manuel Paz y Miño

Catholic University of Uruguay ( email )

Av. 8 de Octubre 2738
Montevideo, CP 11600
Uruguay

Gustavo Torrens (Contact Author)

Indiana University ( email )

Wylie Hall, 100 S Woodland Ave
Bloomington, IN 47405-7104
United States
8128568131 (Phone)

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