The Dynamic Effects of Antitrust Policy on Growth and Welfare

51 Pages Posted: 2 Dec 2020 Last revised: 16 Feb 2021

See all articles by Laurent Cavenaile

Laurent Cavenaile

University of Toronto at Scarborough; University of Toronto - Rotman School of Management

Murat Alp Celik

University of Toronto - Department of Economics

Xu Tian

Department of Finance, Terry College of Business, University of Georgia

Date Written: February 15, 2021

Abstract

To shed light on the dynamic effects of antitrust policy on growth and welfare, we develop and estimate the first general equilibrium model with Schumpeterian innovation, oligopolistic product market competition, and endogenous M&A decisions. The estimated model reveals that: (1) Existing policies generate gains in growth and welfare. (2) Strengthening antitrust enforcement could deliver substantially higher gains. (3) The dynamic long-run effects of antitrust policy on social welfare are an order of magnitude larger than the static gains from higher allocative efficiency in production. (4) Current HHI-based antitrust rules leave the majority of anticompetitive acquisitions undetected, highlighting the need for alternative guidelines. Overall, our results suggest that the long-run impact on innovation policy and aggregate productivity growth should receive much higher consideration in the design of antitrust policies.

Keywords: antitrust policy, mergers and acquisitions, innovation, growth, social welfare.

JEL Classification: E20, G30, O30, O40

Suggested Citation

Cavenaile, Laurent and Celik, Murat Alp and Tian, Xu, The Dynamic Effects of Antitrust Policy on Growth and Welfare (February 15, 2021). Available at SSRN: https://ssrn.com/abstract=3712573 or http://dx.doi.org/10.2139/ssrn.3712573

Laurent Cavenaile

University of Toronto at Scarborough ( email )

1265 Military Trail
Scarborough, Ontario M1C 1A4
Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Murat Alp Celik (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George St.
Toronto, ON M5S 3G7
Canada

HOME PAGE: http://muratcelik.faculty.economics.utoronto.ca/

Xu Tian

Department of Finance, Terry College of Business, University of Georgia ( email )

620 S Lumpkin St
Athens, GA 30602
United States

HOME PAGE: http://www.xutianur.com

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