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Art of the Deal: The Merger Settlement Process at the Federal Trade Commission

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  • Malcolm B. Coate
  • Andrew N. Kleit

Abstract

This paper models the modern merger review process in which an enforcement agency, here the Federal Trade Commission (FTC), interacts with the acquiring firm to determine the outcome of antitrust regulation. Our empirical implementation of a game theoretic analysis tests whether decisions are driven by the costs and benefits of the proposed enforcement initiative as well as whether firms' responses are colored by competitive and institutional considerations. With respect to firms, the results suggest that mergers are driven by the opportunity to capture efficiencies, In contrast, the structural (anticompetitive) characteristics of mergers do not seem to impact firms' litigation decisions. Firms, however, are deterred from fighting the FTC by the potential negative impact on their reputations. In addition, “hostage effects” associated with the size of the noncontroversial portion of acquisitions held up by the FTC's competitive concerns also affect firm decisions.

Suggested Citation

  • Malcolm B. Coate & Andrew N. Kleit, 2004. "Art of the Deal: The Merger Settlement Process at the Federal Trade Commission," Southern Economic Journal, John Wiley & Sons, vol. 70(4), pages 977-997, April.
    • Handle: RePEc:wly:soecon:v:70:y:2004:i:4:p:977-997
    DOI: 10.1002/j.2325-8012.2004.tb00615.x
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    References listed on IDEAS

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    3. Johnson, Ronald N & Parkman, Allen M, 1991. "Premerger Notification and the Incentive to Merge and Litigate," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(1), pages 145-162, Spring.
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    7. Malcolm B. Coate & Andrew N. Kleit, 1998. "Does it matter that the prosecutor is also the judge? The administrative complaint process at the Federal Trade Commission," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(1), pages 1-11.
    8. Lien, Da-Hsiang Donald & Rearden, David, 1990. "A Remark on 'An Advantage of the Linear Probability Model over Probit or Logit.'," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 223-225, May.
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    Cited by:

    1. Chopard, Bertrand & Cortade, Thomas & Cosnita-Langlais, Andreea, 2015. "Success and failure of bargaining in merger control: The case of asset divestitures," Economic Modelling, Elsevier, vol. 49(C), pages 254-259.

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