Optimal merger policy

Abstract

The purpose of this article is to investigate the optimal merger policy in the presence of deterrence as well as type I and type II errors. We derive the optimal number of merger investigations, both when the competition authority commits to a particular activity level and when they do not commit. It is shown that no commitment can lead to a less active merger policy and lower welfare than what is the case if commitment. If commitment there will be a positive welfare effect of the merger investigations due to its deterrence effect, while the merger investigations as such might have a negative impact on welfare (enforcement effect). The results have important implications for how one should interpret the empirical studies of the effects of merger enforcement.