Optimal merger remedies

Organised by

• Department of Economics

This paper develops a framework for merger remedies as a game between merger partners and an antitrust authority with a consumer surplus standard. Remedies are modeled as asset divestitures which reduce the marginal cost of the firm receiving the assets, at the expense of the merged firm. If a merger affects only a single market, asset divestitures on their own are not sufficient for the merger to be implemented---synergies are also required. As the market becomes less competitive, it is less likely that any given merger with remedies is implemented. However, often, a merger affects several different product and geographic markets. Assuming that the authority cares about consumer surplus aggregated over all markets, we show that optimal divestitures are 'bang-bang'. In particular, in each market it is optimal to either divest no assets or as many assets as feasible. In contrast to the single-market analysis, we also show that when a market is less competitive, it is optimal to divest assets in more competitive markets.