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Can no antitrust policy be better than some antitrust policy?, Volume 1
Author:Mattoo, Aaditya; Date Stored:2001/04/25
Document Date:1999/09/30Document Type:Policy Research Working Paper
SubTopics:Economic Theory & Research; General Technology; Small and Medium Size Enterprises; Private Participation in Infrastructure; Environmental Economics & Policies; MicrofinanceLanguage:English
Major Sector:(Historic)Economic PolicyReport Number:WPS2191
Sub Sectors:TradeCollection Title:Policy, Research working paper ; no. WPS 2191
Volume No:1  

Summary: The author examines how the market structure is likely to evolve where there is multistage oligopolistic production - and what the implications of this are for antitrust policy. The author treats the decision to merge across or within stages of production as endogenous. He shows that when firms at a particular stage of production are relatively dominant, simultaneous merger decision are conducive to competitive vertically integrated outcomes, while sequential decisions are not. The persistence of non-integrated market structures may be explained by the existence of equally dominant firms that make merger decisions sequentially. The credible threat of retaliatory merger may deter both socially desirable and undesirable forms of merger. What implications does the author's findings have for antitrust policymakers? For one thing, partial antitrust policy may lead to less competitive market structures than the total absence of such policy, because policy barriers to horizontal mergers only at a particular stage of production eliminate the deterrent effect of retaliatory merger. For example, if the two stages of production are located in countries with different antitrust legislation, a policy that protects consumers from domestic mergers may ultimately hurt them by rendering foreign mergers more attractive. When the equilibrium market structure does not contain socially undesirable mergers, there is no need for antitrust (or competition) policy. Moreover, there may sometimes be a case for the government actually providing supplementary incentives to encourage particular forms of merger - as, for instance, when the threat of retaliatory merger deters socially desirable vertical mergers.

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