A PYMNTS Company

The Effects of Remedies on Merger Activity in Oligopoly

By  |  February 9, 2014

Posted by Social Science Research Network

The Effects of Remedies on Merger Activity in Oligopoly – Markus Dertwinkel-Kalt (Heinrich Heine Universität Dusseldorf – Duesseldorf Institute for Competition Economics (DICE)) and Christian Wey (University of Düsseldorf – Düsseldorf Institute for Competition Economics (DICE))

ABSTRACT: We analyze the effects of structural remedies on merger activity in a Cournot oligopoly when the antitrust agency applies a consumer surplus standard. Remedies increase the scope for profitable and acceptable mergers, while divestitures to an entrant firm are most effective in this regard. Concerning social welfare, it is most attractive when the merging parties can extract the asset sale’s entire gains. Merging firms have strong incentives to search for the most efficient buyer. Under incomplete information, an efficient merger type is doomed to over-fix with its divestiture proposal in a pooling equilibrium, which is also possible under separation.