Assessing Horizontal Mergers Under Uncertain Efficiency Gains

35 Pages Posted: 13 Jun 2006

See all articles by Philippe Choné

Philippe Choné

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); CESifo (Center for Economic Studies and Ifo Institute)

Laurent Linnemer

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: May 2006

Abstract

The analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains. The article examines the role of uncertainty (on the efficiency gains) in this tradeoff. Common wisdom is that the antitrust authorities should be very cautious about random gains. Our results show that dismissing efficiency gains on the sole ground that they are uncertain would not be theoretically founded. Indeed, the attitude towards uncertainty depends on the curvature of the social objective function. We exhibit a number of situations where the objective is convex in the efficiency gains, implying that competition authorities should welcome the risk for a given expectation of efficiency gains. Implications for empirical merger analysis are exposed.

Keywords: merger analysis, antitrust, efficiency gains, uncertainty

JEL Classification: K210, L120, L410

Suggested Citation

Choné, Philippe and Linnemer, Laurent, Assessing Horizontal Mergers Under Uncertain Efficiency Gains (May 2006). CESifo Working Paper Series No. 1726, Available at SSRN: https://ssrn.com/abstract=908497 or http://dx.doi.org/10.2139/ssrn.908497

Philippe Choné

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Laurent Linnemer (Contact Author)

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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