Shelving or Developing? Optimal Policy for Mergers with Potential Competitors

• Department of Economics

This seminar features a paper presentation by Chiara Fumagalli (Bocconi University).

A start-up and an incumbent negotiate over an acquisition price. The acquisition may have anti-competitive effects (the suppression of a future competitor, and the possible shelving of the start-up's project) or pro-competitive ones (it may lead to the development of a project that would otherwise not reach the market, and may result in cost savings). We study the optimal merger policy for an antitrust authority that suffers from an information asymmetry relative to the merging parties, and show that it consists in committing to review transactions whose price is not low enough. We also propose empirical tests to identify high-price takeovers that are more likely to exert anti-competitive effects.

Co-authors: M. Motta and E. Tarantino