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Should Mergers be Controlled?

Author

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  • Fridolfsson, Sven-Olof

    (The Research Institute of Industrial Economics)

  • Stennek, Johan

    (The Research Institute of Industrial Economics)

Abstract

Anticompetitive mergers benefit competitors more than the merging firms. We show that such externalities reduce firms' incentives to merge (a holdup mechanism). Firms delay merger proposals, thereby foregoing valuable profits and hoping other firms will merge instead - a war of attrition. The final result, however, is an overly concentrated market. We also demonstrate a surprising intertemporal link: Merger incentives may be reduced by the prospect of additional profitable mergers in the future. Merger control may help protect competition. Holdup and intertemporal links make policy design more difficult, however. Even reasonable policies may be worse than not controlling mergers at all.

Suggested Citation

  • Fridolfsson, Sven-Olof & Stennek, Johan, 2000. "Should Mergers be Controlled?," Working Paper Series 541, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0541
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    Cited by:

    1. Paolo Buccirossi & Lorenzo Ciari & Tomaso Duso & Sven-Olof Fridolfsson & Giancarlo Spagnolo & Cristiana Vitale, 2008. "A Short Overview of a Methodology for the Ex-Post Review of Merger Control Decisions," De Economist, Springer, vol. 156(4), pages 453-475, December.

    More about this item

    Keywords

    Endogenous Mergers & Acquisitions; Coalition Formation; Competition Policy;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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