Working Paper: CEPR ID: DP8989
Authors: Roberto Burguet; Ramon Caminal
Abstract: In this paper we study the optimal ex-ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates. We allow for firm asymmetries and, in particular, we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms. The model demonstrates that, under some circumstances, relatively inefficient mergers may take place. That is, a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits. Such bargaining failures have important implications for the ex-ante optimal merger policy. We show that a more stringent policy than the ex-post optimal reduces the scope of these bargaining failures and raises expected consumer surplus. We use a bargaining model that is flexible, in the sense that its strategic structure does not place any exogenous restriction on the dendogenous likelihood of feasible mergers.
Keywords: bargaining; endogenous mergers; merger policy; synergies
JEL Codes: L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stringency of merger policy (L41) | efficiency of mergers (G34) |
| strategic bargaining process (C78) | suboptimal merger outcomes (L21) |
| more stringent ex-ante merger policy (L49) | alleviation of inefficiencies (D61) |
| more stringent ex-ante merger policy (L49) | consumer surplus enhancement (D11) |
| firm strategies (L10) | merger outcomes (G34) |
| merger outcomes (G34) | regulatory policies (G18) |