Should Mergers be Controlled?

Sven-Olof Fridolfsson and Johan Stennek
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Johan Stennek: The Research Institute of Industrial Economics, Postal: P.O Box 5501, SE-114 85 Stockholm, Sweden

No 541, Working Paper Series from Research Institute of Industrial Economics

Abstract: Anticompetitive mergers benefit competitors more than the merging firms. We show that such externalities reduce firms' incentives to merge (a holdup mechanism). Firms delay merger proposals, thereby foregoing valuable profits and hoping other firms will merge instead - a war of attrition. The final result, however, is an overly concentrated market. We also demonstrate a surprising intertemporal link: Merger incentives may be reduced by the prospect of additional profitable mergers in the future. Merger control may help protect competition. Holdup and intertemporal links make policy design more difficult, however. Even reasonable policies may be worse than not controlling mergers at all.

Keywords: Endogenous Mergers & Acquisitions; Coalition Formation; Competition Policy (search for similar items in EconPapers)
JEL-codes: C78 L12 L41 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2000-12-14
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Working Paper: Should Mergers Be Controlled? (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0541

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