Entry and Merger Policy

Abstract

This note examines the optimal merger policy when competition authorities take into account the e¤ects of their policy on firms'entry decisions. We consider a model featuring ex ante uncertainty about profits and consumer surplus, and derive a simple rule governing the optimal policy in that context. More specifically, we show that the ratio between the loss in ex post consumer surplus and the gain in an entrant's profit induced by an ex post anticompetitive merger is a sufficient statistic to determine when competition authorities should be more lenient. Our findings imply in particular that competition authorities may find it optimal to commit to being more lenient towards successful, rather than unsuccessful, entrants.

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Reference

Laure Jaunaux, Yassine Lefouili, and Wilfried Sand-Zantman, “Entry and Merger Policy”, Economics Letters, vol. 161, December 2017, pp. 124–129.