IDEAS home Printed from https://ideas.repec.org/p/ris/albaec/2024_009.html
   My bibliography  Save this paper

Merger Review under Asymmetric Information

Author

Listed:
  • Langinier, Corinne

    (University of Alberta, Department of Economics)

  • Ray Chaudhuri, Amrita

    (University of Winnipeg)

Abstract

When the antitrust authority has imperfect information about firms' costs, we show that all firms (including firms not participating in a merger) can influence the antitrust authority's merger decision by manipulating pre-merger quantities. As long as the antitrust authority engages in Bayesian updating, we find that there exists a clear relationship between the level of synergy generated by a given merger and the type of error in the merger decision that is more likely to occur. The larger the level of merger-induced synergy, the greater the likelihood of a Type II error whereby a consumer surplus-decreasing merger is allowed. The smaller the level of synergy, the greater the likelihood of a Type I error whereby a consumer surplus increasing merger is rejected.

Suggested Citation

  • Langinier, Corinne & Ray Chaudhuri, Amrita, 2024. "Merger Review under Asymmetric Information," Working Papers 2024-9, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2024_009
    as

    Download full text from publisher

    File URL: https://sites.ualberta.ca/~econwps/2024/wp2024-09.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Carl Shapiro, 2019. "Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 69-93, Summer.
    2. Kamien, Morton I. & Zang, Israel, 1991. "Competitively cost advantageous mergers and monopolization," Games and Economic Behavior, Elsevier, vol. 3(3), pages 323-338, August.
    3. Joseph A. Clougherty & Tomaso Duso, 2009. "The Impact of Horizontal Mergers on Rivals: Gains to Being Left Outside a Merger," Journal of Management Studies, Wiley Blackwell, vol. 46(8), pages 1365-1395, December.
    4. Besanko, David & Spulber, Daniel F, 1993. "Contested Mergers and Equilibrium Antitrust Policy," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(1), pages 1-29, April.
    5. Ben Mermelstein & Volker Nocke & Mark A. Satterthwaite & Michael D. Whinston, 2020. "Internal versus External Growth in Industries with Scale Economies: A Computational Model of Optimal Merger Policy," Journal of Political Economy, University of Chicago Press, vol. 128(1), pages 301-341.
    6. Ralph B. Siebert, 2022. "What Determines Heterogeneous Merger Effects on Competitive Outcomes?," Journal of Industrial Economics, Wiley Blackwell, vol. 70(1), pages 217-256, March.
    7. Choné, Philippe & Linnemer, Laurent, 2008. "Assessing horizontal mergers under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 913-929, July.
    8. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    9. Tomaso Duso & Damien J. Neven & Lars-Hendrik Röller, 2007. "The Political Economy of European Merger Control: Evidence using Stock Market Data," Journal of Law and Economics, University of Chicago Press, vol. 50(3), pages 455-489.
    10. Thomas Giebe & Miyu Lee, 2020. "Competitors in merger control: Shall they be merely heard or also listened to?," European Journal of Law and Economics, Springer, vol. 49(3), pages 431-453, June.
    11. Kamien, Morton I & Zang, Israel, 1993. "Monopolization by Sequential Acquisition," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 205-229, October.
    12. Orley Ashenfelter & Daniel Hosken, 2010. "The Effect of Mergers on Consumer Prices: Evidence from Five Mergers on the Enforcement Margin," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 417-466.
    13. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    14. Burns, Malcolm R, 1986. "Predatory Pricing and Acquisition Cost of Competitors," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 266-296, April.
    15. Arghya Ghosh & Hodaka Morita & Chengsi Wang, 2022. "Welfare Improving Horizontal Mergers in Successive Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 70(1), pages 89-118, March.
    16. Volker Nocke & Michael D. Whinston, 2013. "Merger Policy with Merger Choice," American Economic Review, American Economic Association, vol. 103(2), pages 1006-1033, April.
    17. Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 465-499.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bisceglia, Michele & Piccolo, Salvatore & Tarantino, Emanuele, 2023. "M&A advisory and the merger review process," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    2. Pierre Lasserre & Moez Souissi, 2007. "It Takes Two to Tango. La fusion : exercice de deux options réelles," Économie et Prévision, Programme National Persée, vol. 178(2), pages 51-65.
    3. Amrita Ray Chaudhuri, 2014. "Cross-Border Mergers and Market Segmentation," Journal of Industrial Economics, Wiley Blackwell, vol. 62(2), pages 229-257, June.
    4. Cavenaile, Laurent & Celik, Murat Alp & Tian, Xu, 2021. "The Dynamic Effects of Antitrust Policy on Growth and Welfare," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 42-59.
    5. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," CERS-IE WORKING PAPERS 0213, Institute of Economics, Centre for Economic and Regional Studies.
    6. Eileen Fumagalli & Tore Nilssen, 2019. "Sweetening the Pill: a Theory of Waiting to Merge," Journal of Industry, Competition and Trade, Springer, vol. 19(3), pages 351-388, September.
    7. Petri Lehto & Mihkel M. Tombak, 1997. "Consolidations and the Sequence of Acquisitions to Monopoly," CIG Working Papers FS IV 97-22, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    8. Walter Ferrarese, 2020. "When Multiple Merged Entities Lead in Stackelberg Oligopolies," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(1), pages 131-142, February.
    9. Ray Chaudhuri, A., 2014. "Acquisitions by Multinationals and Trade Liberalization," Discussion Paper 2014-006, Tilburg University, Center for Economic Research.
    10. Ray Chaudhuri, A., 2011. "Cross-Border Mergers and Market Segmentation (Replaces CentER DP 2010-096)," Discussion Paper 2011-112, Tilburg University, Center for Economic Research.
    11. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November.
    12. Emilie Dargaud, 2013. "Horizontal mergers, efficiency gains and remedies," European Journal of Law and Economics, Springer, vol. 36(2), pages 349-372, October.
    13. Benchekroun, Hassan & Breton, Michèle & Chaudhuri, Amrita Ray, 2019. "Mergers in nonrenewable resource oligopolies and environmental policies," European Economic Review, Elsevier, vol. 111(C), pages 35-52.
    14. Dockner, Engelbert J. & Gaunersdorfer, Andrea, 2001. "On the profitability of horizontal mergers in industries with dynamic competition," Japan and the World Economy, Elsevier, vol. 13(3), pages 195-216, August.
    15. Gugler, Klaus & Szücs, Florian, 2016. "Merger externalities in oligopolistic markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 230-254.
    16. Lindqvist, Tobias, 2005. "Acquisiton Strategies: Empirical Evidence of Outsider-Toeholds," Working Paper Series 634, Research Institute of Industrial Economics.
    17. Tobias Lindqvist & Johan Stennek, 2005. "The Insiders’ Dilemma: An Experiment on Merger Formation," Experimental Economics, Springer;Economic Science Association, vol. 8(3), pages 267-284, September.
    18. Joseph A. Clougherty & Tomaso Duso, 2010. "Using Rival Effects to Identify Synergies and Improve Merger Typologies," CIG Working Papers SP II 2010-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    19. Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2011. "How effective is European merger control?," European Economic Review, Elsevier, vol. 55(7), pages 980-1006.
    20. Kaplow, Louis, 2021. "Horizontal merger analysis," International Journal of Industrial Organization, Elsevier, vol. 79(C).

    More about this item

    Keywords

    Horizontal mergers; Asymmetric information; Competition policy; Cournot competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:albaec:2024_009. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joseph Marchand (email available below). General contact details of provider: https://edirc.repec.org/data/deualca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.