Contestability and Regulation Revisited and Applications to Pro-Competitive Mergers
15 Pages Posted: 7 Mar 2007
Date Written: 2007
The purpose of this paper is to revisit the contestability idea and to formalize distinctions between industrial contestability and market contestability (analogous to those between industrial and market diversification) as well as the definition of regulated contestability. Applications to mergers and merger policy are then developed in a context of positive spillovers, with reference to brand enhancing effects and with reference to R&D and other cost reducing effects. A major conclusion of the paper is that, far from raising barriers to entry, mergers may have contestability enhancing effects and in such cases should be actively encouraged by regulators.
Keywords: Contestability, Spillovers, Mergers, EU Policy
JEL Classification: L13, L51
Suggested Citation: Suggested Citation