Mergers between regulated firms with unknown efficiency gains

Raffaele Fiocco and Dongyu Guo ()

Review of Economic Design, 2015, vol. 19, issue 4, 299-326

Abstract: In an industry where regulated firms interact with unregulated competitors, we investigate the welfare effects of a merger between regulated firms when efficiency gains are uncertain before the merger and their realization becomes private information of the merged firm. The optimal merger policy trades off potential efficiency gains against regulatory distortions from informational problems. We show that, as a consequence of this trade-off, fiercer competition between unregulated firms induces a more lenient merger policy. However, if the regulated firms diversify into a competitive segment of the market, softer competition can relax the optimal merger policy. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Asymmetric information; Competition; Efficiency gains; Mergers; Regulation; D82; L43; L51 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s10058-015-0178-5

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