Winners and Losers from Anti-Merger Laws

Konstantine Gatsios and Larry Karp

No 336, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a model in which, in the absence of anti-merger laws, a merger that includes all non-competitive firms always occurs. The merger, however, can only occur (in the absence of laws which prohibit it) after the firms are formed, which in the present context means after investment has occurred. The investment decision is always undertaken non-cooperatively but with the rational anticipation of whether or nor a merger will subsequently occur. The anticipation of a merger alters the incentives for investment. The anticipated merger may increase the equilibrium level of investment to such an extent that net profits are lower than when a merger is prohibited. As a result the monopoly price may be less than the oligopoly price, and anti-merger laws may harm consumers and benefit producers.

Keywords: Disadvantageous cartels; Investment games; Mergers (search for similar items in EconPapers)
JEL-codes: L (search for similar items in EconPapers)
Date: 1989-08
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