Working Paper: CEPR ID: DP17059
Authors: Andrew Sweeting; Mario Leccese; Xuezhen Tao
Abstract: Methods used to predict post-merger outcomes assume that synergies are common knowledge and imply that synergies will be at least partially passed through to consumers, potentially offsetting anticompetitive merger effects. However, the common knowledge assumption is inconsistent with other features of the merger review process and its implications are potentially inconsistent with the evidence of merger retrospectives. We relax the assumption in a simple model of post-merger competition and show that strategic incentives can lead a merged firm to not pass through quite large synergies arising in both horizontal and vertical mergers.
Keywords: Oligopoly; Mergers; Asymmetric Information; Pooling; Firm Conduct; Passthrough
JEL Codes: L1; L13; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger synergies (G34) | pricing behavior (D40) |
| information asymmetry (D82) | pricing behavior (D40) |
| market concentration (L11) | profitability of passing through synergies (L21) |
| uncertainty about efficiencies (D89) | pricing strategies (D49) |
| merger (G34) | uncertainty about efficiencies (D89) |
| merged firm's pricing strategy (L11) | consumer prices (P22) |