Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control

Damien J. Neven and Lars-Hendrik Röller

Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) from Université de Lausanne, Faculté des HEC, DEEP

Abstract: This paper considers merger control in a common agency framework where firms and their competitors can influence the antitrust agency and where transparency - while making lobbying less effective - also implies real resource costs. We examine the performance of two alternative standards that can be assigned to the antitrust agency in the presence of these regulatory failures. We find that under a welfare standard, lobbying leads to the clearance of relatively inefficient mergers that decrease welfare (i.e. there is a type II error). By contrast, under a consumer surplus standard the agency will ban relatively efficient mergers that would increase welfare (i.e. there is a type I error). Lobbying actually reduces the extent to which this occurs, albeit at a cost in terms of real resources. We also find that a consumer surplus standard is more attractive when mergers are large, when increasing the size of a merger greatly enhances industry profits, when there is little transparency, and when co-ordination costs amongst competitors are low.

Keywords: political economy; merger control; institution design (search for similar items in EconPapers)
JEL-codes: K20 L44 (search for similar items in EconPapers)
Date: 2000-10
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Related works:
Journal Article: Consumer surplus vs. welfare standard in a political economy model of merger control (2005)
Working Paper: Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control (2000)
Working Paper: Consumer Surplus vs. Welfare Standard in a Political Economy Model of Merger Control (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:lau:crdeep:00.24

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