Working Paper: CEPR ID: DP2620
Authors: Damien J. Neven; Larshendrik Røller
Abstract: This paper considers merger control in a common agency framework where firms and their competitors can influence the antitrust agency and where transparency - while making lobbying less effective - also implies real resource costs. We examine the performance of two alternative standards that can be assigned to the antitrust agency in the presence of these regulatory failures. We find that under a welfare standard, lobbying leads to the clearance of relatively inefficient mergers that decrease welfare (i.e. there is a type II error). By contrast, under a consumer surplus standard, the agency will ban relatively efficient mergers that would increase welfare (i.e. there is a type I error). Lobbying actually reduces the extent to which this occurs, albeit at a cost in terms of real resources. We also find that a consumer surplus standard is more attractive when mergers are large, when increasing the size of a merger greatly enhances industry profits, when there is little transparency, and when co-ordination costs amongst competitors are low.
Keywords: lobbying; merger control; political economy
JEL Codes: D72; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lobbying (D72) | Clearance of inefficient mergers (G34) |
| Clearance of inefficient mergers (G34) | Welfare decreases (I38) |
| Lobbying (D72) | Type II error (C52) |
| Consumer surplus standard (D11) | Ban of efficient mergers (L41) |
| Ban of efficient mergers (L41) | Welfare decreases (I38) |
| Lobbying (D72) | Type I and Type II errors (C12) |
| Consumer surplus standard (D11) | More attractive when mergers are large (G34) |
| Consumer surplus standard (D11) | More attractive when industry profits significantly increase with merger size (L25) |
| Consumer surplus standard (D11) | More attractive when transparency and coordination costs are low (D23) |