Accurate horizontal merger policy
Consumer welfare is the individual benefits derived from the consumption of goods and services. A merger occurring between companies in the same industry is considered a horizontal merger. The EU-backed project HM-PP (Advances in horizontal merger policy and selected public policy topics) delved deeply into the business consolidation that occurs between firms operating in the same space, as competitors offering the same good or service. Horizontal mergers are common in industries with fewer firms, because competition tends to be higher there and the synergies and possible gains in market share are also much greater. In antitrust applications, some argue that the goal is to maximise consumers' surplus, while others argue that producer benefits should also be taken into account. According to the researchers, current merger control policies typically do not consider firms' strategic reactions to policy. The main model in the study argues that firms are not passive subjects of policy either before or after the merger or merger attempt. In this model, firms take into account merger control policy in their strategic price and non-price decisions, particularly product positioning. In this scenario, firms may react to a merger blockage by increasing product differentiation. Such an increase in differentiation makes price competition less severe, and the resulting merger blockage pricing is not as low as expected. This model implies that merger control policy as currently implemented may have room for improvement. The project explored optimal merger policy in a series of theoretically modelled games that become increasingly complicated. This was the first phase of the project. The second phase focused on empirical research programmes in selected public policy topics. The goal was to address social and economic policies in Europe and globally. Topics touched on include moral hazard in health insurance, formal versus informal care, defence spending and social enterprises. Researchers successfully completed the EU-funded project and disseminated data online.
Keywords
Horizontal merger, consumer welfare, merger policy, public policy, business consolidation