Merger Review under Asymmetric Information

Corinne Langinier and Amrita Ray Chaudhuri

No 2024-9, Working Papers from University of Alberta, Department of Economics

Abstract: When the antitrust authority has imperfect information about firms' costs, we show that all firms (including firms not participating in a merger) can influence the antitrust authority's merger decision by manipulating pre-merger quantities. As long as the antitrust authority engages in Bayesian updating, we find that there exists a clear relationship between the level of synergy generated by a given merger and the type of error in the merger decision that is more likely to occur. The larger the level of merger-induced synergy, the greater the likelihood of a Type II error whereby a consumer surplus-decreasing merger is allowed. The smaller the level of synergy, the greater the likelihood of a Type I error whereby a consumer surplus increasing merger is rejected.

Keywords: Horizontal mergers; Asymmetric information; Competition policy; Cournot competition (search for similar items in EconPapers)
JEL-codes: L13 L40 L41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2024-10-31
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2024_009

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