Horizontal Mergers, Involuntary Unemployment, and Welfare

Oliver Budzinski and Jürgen-Peter Kretschmer ()
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Jürgen-Peter Kretschmer: Economic Policy Unit, Philipps-University of Marburg, Germany

No 90/09, Working Papers from University of Southern Denmark, Department of Sociology, Environmental and Business Economics

Abstract: Standard welfare analysis of horizontal mergers usually refers to two effects: the anticompetitive market power effect reduces welfare by enabling firms to charge prices above marginal costs, whereas the procompetitive efficiency ef-fect increases welfare by reducing the costs of production (synergies). How-ever, demand-side effects of synergies are usually neglected. We introduce them into a standard oligopoly model of horizontal merger by assuming an (empirically supported) decrease in labour demand due to merger-specific synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers are substantially decreased, if involuntary unemployment exists. However, in full employment economies, demand-side effects remain negligible. Eventually, policy conclusions for merger control are discussed.

Keywords: Horizontal mergers; involuntary unemployment; efficiency defense; oligopoly; competition (search for similar items in EconPapers)
JEL-codes: J01 L13 L16 L41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2009-04
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Horizontal Mergers, Involuntary Unemployment, and Welfare (2009)
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