Efficiencies in Horizontal Mergers: Williamson Revisited

Abstract

In this paper, we investigate the pros and cons of using the consumer welfare standard in the competitive assessment of horizontal mergers. The main difference between the total welfare standard and the consumer welfare standard in merger control lies in the treatment of efficiencies. Under the total welfare standard, a merger may be cleared even if it results in an increase in prices and a reduction in consumer welfare. For that to occur, the efficiencies resulting from a merger must be sufficiently large to offset the harm caused to consumers. We show that the consumer welfare standard, unlike the total welfare standard, fails to fully capture all the efficiency effects of a horizontal merger and, hence, is likely to cause both type I and type II errors. We also show that the consumer welfare standard cannot be rigorously justified on the grounds of distributive justice or ease of administration.

Keywords: Mergers, efficiencies, welfare

JEL Classification: D61, K21