Efficiency Defense and Administrative Fuzziness in Merger Regulation

CERGE-EI Working Paper No. 234

44 Pages Posted: 10 Nov 2005

See all articles by Andrei Medvedev

Andrei Medvedev

Government of the United Kingdom - Financial Services Authority

Date Written: July 2004

Abstract

Inclusion of an efficiency defense brings about an asymmetric information problem between an antitrust agency and merging firms concerning efficiencies due to mergers. Effort level and merger type determine the probability of producing the evidence that efficiencies satisfy a consumer welfare standard. The agency minimizes mistakes in its decisions. The model explains the presence of a fuzzy approval rule, i.e. approval probabilities between zero and one. If type I and type II mistakes are perfect substitutes, then only under strict restrictions on exogenous parameters fuzziness is welfare enhancing. If the agency can commit to certain policies or mistakes are non-perfect substitutes, then a fuzzy rule is preferred under wider range of parameters.

Keywords: Merger regulation, efficiency defense, commitment

JEL Classification: K21, L44, L51

Suggested Citation

Medvedev, Andrei, Efficiency Defense and Administrative Fuzziness in Merger Regulation (July 2004). CERGE-EI Working Paper No. 234, Available at SSRN: https://ssrn.com/abstract=841904 or http://dx.doi.org/10.2139/ssrn.841904

Andrei Medvedev (Contact Author)

Government of the United Kingdom - Financial Services Authority ( email )

25 The North Colonnade
Canary Wharf
London E14 5HS
United Kingdom

HOME PAGE: http://andrei-medvedev.blogspot.co.uk/