Demand-Side Efficiencies in Merger Control

Posted: 2 Jun 2003

See all articles by Jorge Padilla

Jorge Padilla

Compass Lexecon

David S. Evans

Market Platform Dynamics; Berkeley Research Group, LLC

Multiple version iconThere are 2 versions of this paper

Abstract

Firms may be able to create new and improved products as a result of merging. These "demand-side efficiencies" should be considered by competition authorities in considering whether to allow a merger. Unlike reductions in costs that merged firms may not pass on to consumers, new and better products necessarily make consumers better off. Moreover, the value of demand-side efficiencies can be quite large, as recent studies of improved products ranging from toilet paper to minivans has demonstrated. Of course, competition authorities should seek evidence that mergers will facilitate new and improved products and weigh these benefits against increased prices and other costs the merger may create. A review of European Union merger cases shows that the Commission needs to consider demand-side efficiencies, and provides further caution against making efficiencies an "offence" rather than a "defence."

Keywords: demand-side efficiencies, mergers and acquisitions, welfare, competition, antitrust, network effects, European Union, European Commission, Microsoft

JEL Classification: D61, K2, L4, L5

Suggested Citation

Padilla, Jorge and Evans, David S., Demand-Side Efficiencies in Merger Control. Available at SSRN: https://ssrn.com/abstract=406241

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

David S. Evans (Contact Author)

Market Platform Dynamics ( email )

140 South Dearborn St.
Chicago, IL 60603
United States

Berkeley Research Group, LLC ( email )

99 High St.
Boston, MA 02110
United States

HOME PAGE: http://davidsevans.org

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