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8 - Merger policy: what can we learn from experiments?

Published online by Cambridge University Press:  04 December 2009

By
Lorenz Götte  and
Armin Schmutzler
Edited by
Jeroen Hinloopen
Afterword by
Hans-Theo Normann
Jeroen Hinloopen
Affiliation:
Universiteit van Amsterdam
Hans-Theo Normann
Affiliation:
Royal Holloway, University of London
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Summary

This chapter surveys experimental literature relating to mergers. We put particular emphasis on discussing whether this literature addresses the issues that are relevant for competition policy. We also include some suggestions as to how the fit between the experiments and the requirements of competition policy research might be improved.

Introduction

So far, the explicit laboratory analysis of merger policy has been limited to very few examples, even though during the last few decades experimental economists provided many contributions directed at understanding imperfectly competitive markets. One might expect such industrial organization experiments to provide some insight into merger policy, even when they were not designed immediately for this purpose. Therefore, this survey attempts to clarify the role that experiments can play in answering the following questions:

  • What effects do mergers have on the profits of the inside firms, on their competitors, and on consumer welfare? On a related note, under which circumstances should a merger be allowed?

  • Under which circumstances are mergers likely to occur? How close is the relation between conditions that are likely to generate mergers and conditions under which mergers are desirable? In other words, under which conditions do the decisions of firms lead to the “right kind of mergers”?

  • When policy decisions about mergers have to be taken without precise information about whether the theoretical conditions for allowing them are fulfilled, what kind of simple proxies should be used to determine that the circumstances are right?

  • […]

Type
Chapter
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Experiments and Competition Policy , pp. 185 - 216
Publisher: Cambridge University Press
Print publication year: 2009

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