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Efficiency Defence, Administrative Fuzziness, and Commitment in Merger Regulation

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  • Andrei Medvedev

    (Centre for Competition Policy, University of East Anglia)

Abstract

This paper develops a signalling model to look at some effects of the inclusion of an efficiency defence in merger regulation. By incorporating Type I and Type II errors into the antitrust agency's pay-off function approval probabilities are endogenized. The agency can choose to use a fuzzy approval rule (mixed strategies) after observing a double signal (produced evidence and the way it has been produced) as a tool to (partially) separate different merger types by changing approval probabilities and, consequently, firms' expected payoffs from a merger. The separation leads to a lower value of the expected mistake by the agency. If the agency can commit to certain policies, then a fuzzy approval rule is preferred under a wide range of parameters.

Suggested Citation

  • Andrei Medvedev, 2006. "Efficiency Defence, Administrative Fuzziness, and Commitment in Merger Regulation," Working Papers 06-8, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp06-08
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP06-8.pdf
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    Keywords

    Merger regulation; efficiency defence; signalling; commitment;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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