Merger Policy with Merger Choice

Competition Policy and Antitrust

Article Snapshot


Volker Nocke and Michael Whinston


The Center for the Study of Industrial Organization Working Paper #0112, 2011; forthcoming in the American Economic Review


This paper shows how an antitrust authority can best respond to certain firm merger proposals.

Policy Relevance

An antitrust authority can affect the impact on consumers of proposed acquisitions.

Main Points

  • Mergers between firms that produce the same sort of goods, called horizontal mergers, may be beneficial or harmful to consumers.

    • On one hand, a single large firm may be more efficient than two separate firms; for example, if two copper mining firms merge, they may be able to share ore processing facilities, lowering the cost of producing copper and so lowering the cost of goods containing copper.
    • On the other hand, a large firm has a greater ability to maintain high prices than do two smaller firms competing with one another, and this hurts consumers.
  • A thread of economics literature attempts to develop mathematical rules that antitrust authorities like the Federal Trade Commission can use to obtain the best possible outcomes for consumers.
  • In this paper, the authors consider the case of one “pivotal” firm taking bids for a merger from other firms; the firms bargain privately, and the winning bid proposal is brought to the antitrust authority for approval.
  • The authors show that under a variety of conditions, the antitrust authority can make consumers best off by making it relatively difficult for large firms to acquire the pivotal firm.

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