Mergers between regulated firms with unknown efficiency gains

Raffaele Fiocco and Dongyu Guo

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: In an industry where regulated firms interact with unregulated suppliers, we investigate the welfare effects of a merger between regulated firms when cost synergies are uncertain before the merger and their realization becomes private information of the merged firm. The optimal merger policy trades off potential cost savings against regulatory distortions from informational problems. We show that, as a consequence of this trade-off, more intense competition in unregulated segments of the market induces a more lenient merger policy. The regulated firms' diversification into a competitive segment of the market can lead to a softer merger policy when competition is weaker.

Keywords: asymmetric information; competition; efficiency gains; mergers; regulation. (search for similar items in EconPapers)
JEL-codes: D82 L43 L51 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind and nep-reg
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Journal Article: Mergers between regulated firms with unknown efficiency gains (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:464

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