The merger paradox, collusion, and competition policy

Abstract

This paper develops a model that formalizes several connections between mergers, collusion, and competition policy. In equilibrium, firms may merge to make collusion sustainable when it cannot be sustained with the original set of firms. A rise in the probability of detecting and prosecuting collusion could induce a wave of mergers, so firms can sustain collusion again. Indeed, mergers could fully neutralize the procompetitive effect of an improvement in collusion detection and prosecution. From a normative perspective, we show that merger policy is crucial when cost synergies are small (or nonexistent) and the competition authority can only deter collusion by restricting mergers. Finally, we highlight that mergers could be more harmful (less beneficial) than expected if the impact that mergers have on the competition regime is properly considered, which suggests a decomposition of the welfare impact of mergers into unilateral and coordinated effects.

Introducing a system operator in the waste management industry by adapting lessons from the energy sector

“…In some cases, the structure of the industry is influenced by the competition-restricting behavior of operators (Bel, 2021); in other cases, it is influenced by the form of the market that policymakers or regulators consider to be functional for the industry and their goals (Captain, 1997;Bryant, 2016;Garcia et al, 2020;Chen et al, 2022). Hence, a key objective is finding the balance between alternative approaches to maximize social welfare while avoiding restrictions on the functioning of the market (Chirita, 2018;Wang, 2018;Gouri, 2020).…”

Introduction to the thematic issue on “Regulation in health, environmental and innovation sectors”

“…The paper by Garcia et al (2020) develops a model that formalizes several connections between horizontal mergers, collusion, and competition policy. In an infinite-horizon setting, the central question is whether the merger paradox still holds if firms interact over an infinite number of periods and take into account that mergers increase the sustainability of collusive agreements by reducing the number of firms in the market.…”

“…The next two papers, written by Garcia et al (2020) and Franck and Le Pape (2020) are concerned with merger policy and related competition policy issues.…”