Merger settlement as a screening device

This article presents an economic model of judicial settlement in an asymmetric information setting to analyze the merger settlement between merging firms and a competition authority. The model analyzes how the competition authority may use the settlement process to screen out efficient mergers from inefficient ones. Because of the self-selection among merging firms, efficient mergers may be litigated in court, whereas inefficient mergers may be settled before going to trial. We further analyze the role and the effect of the second request in a merger settlement. Copyright Springer Science+Business Media, LLC 2013