Demand-Side Efficiencies in Merger Control

42 Pages Posted: 2 Jun 2003

See all articles by Jorge Padilla

Jorge Padilla

Compass Lexecon

David S. Evans

Global Economics Group; University College London

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2003

Abstract

Firms may be able to create new and improved products as a result of merging. These "demand-side efficiencies" should be considered by competition authorities in considering whether to allow a merger. Unlike reductions in costs that merged firms may not pass on to consumers, new and better products necessarily make consumers better off. Moreover, the value of demand-side efficiencies can be quite large, as recent studies of improved products ranging from toilet paper to minivans has demonstrated. Of course, competition authorities should seek evidence that mergers will facilitate new and improved products and weigh these benefits against increased prices and other costs the merger may create. A review of European Union merger cases shows that the Commission needs to consider demand-side efficiencies, and provides further caution against making efficiencies an "offence" rather than a "defence."

Keywords: demand-side efficiencies, mergers and acquisitions, welfare, competition, antitrust, network effects, European Union, European Commission, Microsoft

JEL Classification: D61, K2, L4, L5

Suggested Citation

Padilla, Jorge and Evans, David S., Demand-Side Efficiencies in Merger Control (March 25, 2003). Available at SSRN: https://ssrn.com/abstract=390500 or http://dx.doi.org/10.2139/ssrn.390500

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

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