Working Paper: CEPR ID: DP3841
Authors: Johan Lagerlf; Paul Heidhues
Abstract: We develop a model in which two firms that have proposed to merge are privately informed about merger-specific efficiencies. This enables the firms to influence the merger control procedure by strategically revealing their information to an antitrust authority. Although the information improves upon the quality of the authority?s decision, the influence activities may be detrimental to welfare if information processing/gathering is excessively costly. Whether this is the case depends on the merger control institution and, in particular, whether it involves an efficiency defense. We derive the optimal institution and provide conditions under which an efficiency defense is desirable. We also discuss the implications for antitrust policy and outline a three-step procedure that takes the influence activities into consideration.
Keywords: antitrust; asymmetric information; disclosure; efficiency gains; lobbying; rent seeking
JEL Codes: D72; D82; K21; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of an efficiency defense (D61) | increase in evidence production by insiders (O36) |
| increase in evidence production by insiders (O36) | positive welfare implications (I31) |
| high efficiency gains (D61) | lower market price (D41) |
| lower market price (D41) | benefit to consumers (D18) |
| high costs of gathering and processing information (D83) | net welfare loss (D69) |
| excessive lobbying (D72) | negative relationship with social welfare (I38) |