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Efficiency Defence, Administrative Fuzziness, and Commitment in Merger Regulation

This paper develops a signalling model to look at some effects of the inclusion of an efficiency defence in merger regulation. By incorporating Type I and Type II errors into the antitrust agency's pay-off function approval probabilities are endogenized. The agency can choose to use a fuzzy approval rule (mixed strategies) after observing a double signal (produced evidence and the way it has been produced) as a tool to (partially) separate different merger types by changing approval probabilities and, consequently, firms' expected payoffs from a merger. The separation leads to a lower value of the expected mistake by the agency. If the agency can commit to certain policies, then a fuzzy approval rule is preferred under a wide range of parameters.
Year of publication:
2006-05
Authors: Medvedev, Andrei
Institutions: Centre for Competition Policy, University of East Anglia
Subject: Merger regulation | efficiency defence | signalling | commitment
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Type of publication: Book / Working Paper
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Number 06-8 27 pages
Classification: K21 - Antitrust Law ; L44 - Antitrust Policy and Public Enterprise Nonprofit Institutions, and Professional Organizations ; L51 - Economics of Regulation
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