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Failing 16 16 failing firm defence in us merger

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Unformatted text preview: es: an otherwise anticompetitive merger will be accepted, if the the failing firm would be unable to meet its financial obligations in the near future obligations it would be not able to reorganise under „Chapter 11 it of the Bankruptcy Act“ of there are no suitable alternative buyers that would there keep the failing firm‘s tangible and intangible assets in the relevant market while having lower antithe competitive effects than the proposed merger in absence of the merger, the failing firm‘s assets in would have exited the market would 17 17 Efficiency Gains How How should one treat mergers that generate efficiency gains? generate e.g. e.g. cost reductions due to economies of scale scale Efficiency Efficiency gains may offset the enhanced market power effect. market If efficiency gains are large enough, If merger may lead to lower prices. merger 18 18 Efficiency Gains Back Back on Oude Markt: suppose suppose all the Pizza Places merge and can now buy their ingredients in larger quantities, so that they get a price discount from the supplier supplier Pizza prices may fall due to cost savings Both Both consumer surplus and total welfare will increase will 19 19 Sources of Efficiency Gains Economies of scale and scope lower cost due to joint production synergies in R&D rationalization of distribution and marketing rationalization activities activities cost savings in administration Managerial Managerial „discipline“: merger may replace less able managers with better ones (no strong empirical support for this). ones 20 20 Sources of efficiency gains Note: Note: if efficiency gains only result from reduction of fixed cost, it has no effect on pricing (as firms price based on variable cost) cost) May May still be welfare enhancing, but only due to higher profits of merged firms higher Typically agencies favor improvements of Typically consumer surplus consumer 21 21 Asymmetric Information Competition Competition Authority is less informed about the consequences within the merged firm than the firms themselves merged If efficiency gains are crucial determinant If of authority‘s decision, merging firms have an incentive to overstate efficiency gains an Rivals will understate the efficiency gains Authority should rely on independent Authority studies on possible efficiency gains studies 22 22 Pro-collusive effects more more favorable conditions for collusion in industry after merger, e.g. reduced number firms in market from 3 to 2 remaining fi...
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