Merger remedies involving restructuring costs in a Cournot framework

Merger remedies involving restructuring costs in a Cournot framework We analyze the effects of structural merger remedies in a Cournot framework. In particular, we extend a basic model approach by introducing restructuring investments that are necessary to implement divestiture remedies. We assume that such investments increase the merging parties’ marginal cost of production and show that they therefore reinforce the effect of divestitures on post-merger competition. As a consequence, if the competition authority does not take restructuring investments into account while fixing the remedies, the size of the divestiture will be too large and hence over-fix the competition issue. This not only causes an unduly increase of the market power of the competitor but also reduces the synergy gains of the merging parties and therefore hurts consumers in the affected markets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Empirica Springer Journals

Merger remedies involving restructuring costs in a Cournot framework

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Publisher
Springer Journals
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC.
Subject
Economics; European Integration; International Economics; Macroeconomics/Monetary Economics//Financial Economics; Econometrics; Industrial Organization; Public Finance
ISSN
0340-8744
eISSN
1573-6911
D.O.I.
10.1007/s10663-010-9162-z
Publisher site
See Article on Publisher Site

Abstract

We analyze the effects of structural merger remedies in a Cournot framework. In particular, we extend a basic model approach by introducing restructuring investments that are necessary to implement divestiture remedies. We assume that such investments increase the merging parties’ marginal cost of production and show that they therefore reinforce the effect of divestitures on post-merger competition. As a consequence, if the competition authority does not take restructuring investments into account while fixing the remedies, the size of the divestiture will be too large and hence over-fix the competition issue. This not only causes an unduly increase of the market power of the competitor but also reduces the synergy gains of the merging parties and therefore hurts consumers in the affected markets.

Journal

EmpiricaSpringer Journals

Published: Jan 19, 2011

References

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