TITLE:
Mergers with Structural Remedies in a Cournot Oligopoly
AUTHORS:
Dongyu Guo
KEYWORDS:
Merger Policy, Structural Remedies, Divestiture
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.2,
April
26,
2020
ABSTRACT: In a Cournot oligopolistic market, we investigate the
social welfare effects of a one-shot bilateral merger with efficiency gains and
structural remedies. The optimal merger policy trades off efficiency gains against
market power. We show that a special case of structural remedies, namely, the divestiture
of differentiated brands to an existing competitor, can be a powerful tool to lessen
the merged entity’s market power. As a consequence of the aforementioned trade-off,
mergers with remedies can increase the scope for privately and socially desirable
mergers, and lower efficiency gains from the merger require more divestitures to
the competitor.