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Sequential Merger Review
Abstract
We analyze the optimal dynamic policy of an antitrust authority to- wards horizontal mergers when merger proposals are endogenous and oc- cur over time. Approving a currently proposed merger will affect the profitability and welfare effects of potential future mergers, the charac- teristics of which may not yet be known to the antitrust authority. We show that, in many cases, this apparently difficult problem has a simple resolution: an antitrust authority can maximize discounted consumer sur- plus by using a completely myopic merger review policy that approves a merger today if and only if it does not lower consumer surplus given the current market structure.
... In a sense, the exclusive contract represents a coalition between the incumbent and the buyer at the expense of the entrant. 22 This role is similar to that played by exclusive deals 9 when the exclusivity provision can be breached by paying stipulated damages. 23 In that case, the incumbent has an incentive to set the damages in such a way that (independent) entry is accommodated and that it appropriates the entire surplus the more efficient producer brings to the market. ...
... These cases do not deliver any new insight into the analysis. 22 The entrant's payoff would be higher if the exclusive deal were rejected: π r,m E − π s E = β [(c I − c E ) q(c I ) − f ] + (1 − β) π m (c I ) > 0. 23 See Aghion and Bolton (1987) and Spier and Whinston (1995). 24 In this paper, there is an interaction between two successive decisions -on exclusive dealing and on a merger -that the Antitrust Authority could take. ...
... Motta and Vasconcelos (2005) show that a myopic Antitrust Authority may prohibit mergers that would be welfare beneficial once taken into account that other mergers would follow. Nocke and Whinston (2007) 28 instead identify a model where the behaviour of a myopic AA would be optimal also in a dynamic perspective. 25 Fumagalli, Motta and Persson (2006) fully develop the case of costly mergers and identify the exact threshold levels of the merger cost and of the entrant's marginal cost mentioned in this discussion. ...
Abstract We extend the literature on exclusive dealing by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive dealing can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance of exclusivity. Third, despite allowing the more efficient technology to find its way into the industry, exclusive dealing reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal and (ii) it may deter entry altogether. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.
... also by mergers ? to overcome these disadvantages. Thus, the phenomena of merger cascades, also called dynamic mergers [10], which will lead to an industry merger wave takes place, just like the diffusion of infectious diseases. If so, key questions need to be answered: (1) How to describe the formation process of an industry merger wave? ...
By taking China’s beer industry as an example, this paper establishes a series of industrial competition pressure networks and examines the correlation between competition structure and merger actions. We present a cascade dynamic-merger agent-based computational model driven by competition pressure diffusion to describe the forming process of industry merger wave. The empirical analysis and simulation results show that the competition structure among rivals has a strong effect on the scale, the duration time, and the stability of industry merger wave. We also give explanations on why there are different simulation results between in single market competition environment and in multi-market competition environment, as well as discuss the management implications for the industry-merger policy makers and the merger-tactics decision makers that are involved in merger wave.
... Perry and Porter, 1986) and has not emphasized the policy-making and enforcement aspects of antitrust." 7 Merger review in a dynamic context is also analyzed in Motta and Vasconcelos (2005) and in Nocke and Whinston (2007). Like the current paper, these studies investigate situations where the AA adopts a forward-looking review policy, i.e., forecasts the (final) welfare effects of the proposed merger given the fact that this merger might trigger future mergers. ...
This paper proposes a sequential merger formation game to study how trade policy can influence firms' choice between intra-national and cross-border mergers in an international Cournot oligopoly with a cost structure à la Perry and Porter [Perry, M. and Porter, R.H., 1985. Oligopoly and the Incentive for Horizontal Merger. American Economic Review 75(1), 219–227.]. We find that the equilibrium market structure depends heavily on: (i) the level of trade costs; and (ii) whether or not active antitrust authorities are incorporated within the sequential merger game. In addition, it is shown that whenever mergers occur in equilibrium, they occur in waves and the merger wave comprises at least one cross-border merger.
The purpose of this research is the assessment of the competitive environment in the Russian oil market. The subject-matter of the study is the Russian oil and gas companies as a basis of the Energy market. We check the hypothesis about the development of the mechanism of corrective condition in the sphere of preliminary control of market concentrations in the fuel and energy complex (FEC). The basis of this research is the modern theory of industry markets studying various structures of the markets, the behavior of their participants, probable consequences of their functioning and interaction, as well as the impact of the state on the functioning of markets, its participants, and the results of their activities. We calculated and analyzed the key indicators characterizing the processes of market concentration in the oil industry. We also considered the competition policy of the Russian Federation in mergers and acquisitions deals (M&A deals) concerning oil and gas assets. The authors estimated over 460 decisions made by the Federal Antimonopoly Service of the Russian Federation for the period from 2011 to 2015 in the control on economic concentration in fuel-and-energy industry. Based on the data characterizing the development of competitive environment, we have proved that the considered goods market belongs to markets with insufficiently developed competition. The results of the research will make a certain contribution to studying the efficiency of M&A transactions in the oil and gas industry, and also can be applied for the implementation of anti-monopoly actions by the Federal Antimonopoly Service of the Russian Federation.
Based on a database of 326 merger cases scrutinized by the European Commission between 1990 and 2007, we evaluate the economic impact of the change in European merger legislation in 2004. We first propose a general framework to assess merger policy effectiveness, which is based on standard oligopoly theory and makes use of stock market reactions as an external assessment of the merger and the merger control decisions. We then focus on four different dimensions of effectiveness: 1) legal certainty; 2) frequency and determinants of type I and type II errors; 3) rent-reversion achieved by different merger policy tools; and 4) deterrence of anti-competitive mergers. To infer the economic impact of the merger policy reform, we compare the results of our four tests before and after its introduction. Our results suggest that the policy reform seems to have been only a modest improvement of European merger policy.
We study sequential merger incentives under presence of product differentiation. Two sets of firms produce closely related goods, whereas each set produces more differentiated goods. Merger incentives under product differentiation are found to be stronger for two firms producing closely related goods than more differentiated goods. Also, after one merger, other firms are willing to follow with their own merger, resulting in sequential mergers. This result is consistent with the recent mergers in the video game software industry in Japan. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd/University of Adelaide and Flinders University.
We extend the literature on exclusive dealing, which assumes that entry can occur only by installing new capacity, by allowing the incumbent and the potential entrant to merge. This uncovers new effects. First, exclusive deals can be used to improve the incumbent's bargaining position in the merger negotiation. Second, the incumbent finds it easier to elicit the buyer's acceptance. Third, exclusive dealing, despite allowing the more efficient technology to find its way into the industry, reduces welfare because (i) it may trigger entry through merger whereas independent entry would be socially optimal, (ii) it leads to a sub-optimal contractual price when the exclusive dealing include a price commitment, (iii) it may deter entry altogether.
I develop a dynamic model of mergers, where mergers, investment, entry, and exit are endogenous variables rationally chosen by firms to maximize expected future profits. This model differs from previous analyses in that it incorporates dynamics and endogenizes the merger process. The model generates reasonable predictions: allowing for mergers has the expected effect on entry, exit, investment, and surpluses; changes in tastes and technologies affect industry equilibrium in plausible ways. The results demonstrate that this type of analysis is feasible and can potentially be used as a tool for antitrust policy analysis.