Politica de fusiones y ganancias en eficiencia.
| Autor | Avalos Bracho, Marcos |
Merger Policy and Efficiency Gains
Introduction
One crucial aspect of the application of competition policy for mergers is the efficiency gains consideration. (1) This is not a minor point, since many competition authorities around the world are using efficiency gains considerations when discussing merger activity. (2)
The aim of this paper is to provide a discussion on mergers and the role played by efficiency gains. We hold that divestment remedies can indeed induce socially desirable self-selection in mergers. Such remedies often emerge as a result of negotiations between the merging firms and the antitrust authority. (3)
In practice, the task of antitrust authorities is complicated by the fact that most mergers claim to achieve some kind of efficiency gains (i.e. some form of cost reduction or quality improvement), particularly in negotiation with the antitrust authorities. By exploiting cost synergies, the merged firms might be able to experience production costs below those of either firm before the merger. Therefore, merger policy involves the delicate balancing of anticompetitive effects against possible efficiency gains. (4) In assessing this trade-off, the competition authority often relies on very imperfect information. Not only is the evaluation of market power inherently imprecise, but the merging parties typically have better information about potential efficiency gains than regulators. (5) Of course, the merger review process is designed to extract as much information as possible from the parties, but it is reasonable to assume that some asymmetry remains.
This paper aims to study the consecuences of this asymmetric information on formulating merger policy in the light of "policy remedies". The idea is quite simple; by requiring some form of divestment, the antitrust authority makes the merger less attractive to the merger firms. This means that marginally profitable mergers will be called off. In the absence of any asymmetric information on market power, marginally profitable mergers will tend to exhibit weak synergies, i.e. those that would be less likely to yield net welfare gains. One can therefore hope that an appropriately chosen disvestment remedy would help select mergers that are socially beneficial.
Modelling this simple insight is surprisingly difficult for two main reasons. Firstly, since the effectiveness of the divestment remedy relies on self-selection, the decision to merge can no longer be completely exogenous. While one can still consider an arbitrary merger between two firms, the decision whether or not to proceed with the merger, given the divestment requirement, must now be modelled. It is well known that the traditional analysis framework on horizontal mergers, in the light of private incentives to mergers and merger process, heavily base on quantity-setting (Cournot Oligopoly) models. (6) From the point of view of policy-making and enforcement aspects of competition policy, some economists believe that this model of competition with anticompetitive effects of merger has been the dominant approach in the internal analysis of antitrust authorities during the last decade (see for example Baker, 1999; Hay and Werden, 1993).
One difficulty with this, is that in Cournot competition at least, mergers tend to be unprofitable for the merging parties, but profitable for their rivals. (7) We deal with the merger paradox by introducing favorable cost effects. These gains will be specified as reductions in (constant) unit costs. (8)
The second difficulty is that in the traditional specification of mergers, the concept of 'divestment' is meaningless: the two merging firms just become a single firm, with nothing to show that they ever were separate entities. We deal with this issue by introducing capacity constraints. We start from an initial situation where all firms are capacity-constrained, and capacity expansion is prohibitively expensive. In this context, the merged firm actually differs from its rivals in that it has access to double the capacity. (9) In other words, mergers involve not only a coordination of (pricing) decisions, but also the "adding up" of tangible assets. (10)
In this paper, we build a model upon the existing literature, particularly Williamson (1968), Farrell and Shapiro (1990), Perry and Porter (1985) and Besanko and Spulber (1993), to investigate how some of the policy tools at the antitrust authority's disposal might help alleviate the problem of asymmetric information on potential synergies. (11) Perry and Porter (1985) investigated the circumstances under which an incentive to merge exists even though the product is homogenous, but they failed to analyze (or account for) issues related to welfare on merger policy. Although Farrell and Shapiro (1990) give sufficient general conditions under which all privately profitable mergers increase welfare and, presumably, all proposed mergers should be approved, they do not consider the problem of asymmetric information.
The main information needed in the Farrell and Shapiro's externality condition (12) is split into two separable parts. First, to see whether a merger would indeed reduce output requires information only on the participants' (pre-merger) marginal cost functions and on those of the merged entity. Second, to evaluate the external effect, whether it benefits or harms rival firms and consumers jointly, and only requires information on market shares and the output responsiveness parameters of non-merging firms (Farrell and Shapiro, 1990, p. 122). There is a problem in the first part, when firms choose to understate the true level of synergies, for example, by reporting a different value and hiding evidence showing greater efficiency gains. In this situation, the government will infer that merger is socially desirable, when in fact it is not; the merger would be approved under Farrell and Shapiro's externality condition. (13)
Our model is more closely related to the work by Besanko and Spulber (1993) on the effects of asymmetric information in designing merger policy. In their model, they assume that the post-merger level of synergies (as a reduction of marginal costs) is private information only concerning the merging firms. Besanko and Spulber (1993) show that, under asymmetric information, expected social welfare is maximised when the antitrust authority makes the decision to challenge using a standard that is tougher than the social welfare criterion. In this setting, the antitrust policy and enforcement process has two stages. In the first stage, a welfare standard that will be employed in the evaluation of horizontal merger cases is chosen. This standard is chosen to maximize expected social welfare. In the second stage, given the welfare standard, firms decide whether or not to merge. If a merger occurs, the antitrust authority decides whether to challenge the merger by applying the welfare standard chosen in the first stage. (14) Nevertheless, as in the case of Besanko and Spulber (1993), we assume that the merging firms have better information about cost savings than the antitrust authority.
This paper limits itself to showing that divestment remedies can indeed induce socially desirable self-selection in mergers. By introducing a capacity-constrained Cournot model, we show that one way to extract useful information from the merging firms is to design a scheme (requiring that the firms divest some of their assets) that leads to self-selection of the more socially worthwhile mergers. In particular, we show that some of the mergers that firms would pursue are undesirable because of their effect on welfare, so that approval is only warranted if synergies are large enough. In the presence of asymmetric information on the level of efficiency gains, the antitrust authority must trade-off the benefits from approving mergers that are desirable against the cost of approving mergers that would decrease welfare. In this case, there might be a role for divestment policy. Since the current model is quite specific, however, we have not yet been able to determine with any generality how the extent of the required divestment should vary as a function of initial industry concentration. The rest of the paper is organized as follows.
The model is clarified in detail in the following section (I). The pre-merger and post-merger equilibria are analyzed in section II. Also, we determine when mergers are profitable. In section III we introduce a divestment policy instrument and analyze its effect on equilibrium. Further, we derive the locus of binding regulation by the antitrust authority and undertake the welfare analysis for the constrained case. In section IV we discuss the merger policy of the model and determine the conditions under which the divestment policy can induce socially desirable self-selection in mergers. Finally, some concluding remarks are made in section V.
-
The Model
Let N be the Cournot identical firms competing in a homogeneous product market. Each firm i has an initial exogenous capacity constraint [K.sub.i] = K [for all]i. (15) We assume a linear inverse demand function P(Q) = 1 - bQ and that marginal costs are constant [c.sub.i] = c [for all]i and common among all firms, while fixed costs are zero. We assume that firms are capacity-constrained, so that [K.sub.i] [less than or equal to] [q.sup.*.sub.i] (c), where [q.sup.*.sub.i] stands for the equilibrium value of a unconstrained firm's output. While the level of capacity is set exogenously, we want to ensure that each firm would not have any incentive to expand its own capacity through "greenfield" investment. Bearing this in mind, we therefore assume that [K.sub.i] [greater than or equal to] [q.sup.*.sub.i] ([c.sub.k]), where [c.sub.K] indicates the marginal cost of increasing the capacity, and [c.sub.K] > c. If firm i wishes to produce greater output, it must acquire additional capacity by merging, so we can expect that this...
Para continuar leyendo
Solicita tu pruebaCOPYRIGHT GALE, Cengage Learning. All rights reserved.
