Negotiation and Merger Remedies: Some Problems

UC Berkeley, Competition Policy Center Working Paper No. CPC03-41

13 Pages Posted: 7 Feb 2004

See all articles by Joseph Farrell

Joseph Farrell

University of California, Berkeley - Department of Economics

Date Written: August 2003

Abstract

Over two-thirds of FTC and DOJ merger challenges in fiscal 1998 and 1999 were resolved by "negotiated restructuring." Yet, while there is a lot of economics literature on the effects of mergers, I am not aware of much on merger fixes and divestitures. Similarly, while there is a lot of economics literature on optimal government merger policy if "the government always wins," I do not know of much economic analysis of policy for the government as antitrust negotiator and litigator.

I present a very preliminary exploration, making three somewhat separate points. First, agencies should beware of over-trusting the buyer of the divested assets. A strong argument can be made that the buyer is a teammate not of the agency but of the merging parties. Second, many commentators disapprove of "remedies" that do not directly fix competitive problems arising from the merger. One economic rationale for such disapproval concerns effects on incentives for firms to seek and pursue merger opportunities. Perhaps surprisingly, this could suggest a somewhat unsympathetic attitude toward efficiencies that coexist with competitive harm, even if the real policy goal is total surplus. Third, the government does not always win. An oversimplified bargaining model of remedy negotiation between the agency and the merging parties suggests that, even if its true goal is total surplus, an agency might encourage staff to discount (or even be hostile to) efficiencies, especially when the parties have significant bargaining power.

Keywords: Merger remedies, mergers, negotiation, competition

JEL Classification: Ll4, K2

Suggested Citation

Farrell, Joseph, Negotiation and Merger Remedies: Some Problems (August 2003). UC Berkeley, Competition Policy Center Working Paper No. CPC03-41, Available at SSRN: https://ssrn.com/abstract=495602 or http://dx.doi.org/10.2139/ssrn.495602

Joseph Farrell (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
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