Horizontal Mergers, Involuntary Unemployment, and Welfare
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Philipps-Universität Marburg
Abstract
Standard welfare analysis of horizontal mergers usually refers to two effects: the
anticompetitive market power effect reduces welfare by enabling firms to charge prices above
marginal costs, whereas the procompetitive efficiency effect increases welfare by reducing the
costs of production (synergies). However, demand-side effects of synergies are usually
neglected. We introduce them into a standard oligopoly model of horizontal merger by
assuming an (empirically supported) decrease in labour demand due to merger-specific
synergies and derive welfare effects. We find that efficiency benefits from horizontal mergers
are substantially decreased, if involuntary unemployment exists. However, in full employment
economies, demand-side effects remain negligible. Eventually, policy conclusions for merger
control are discussed.
Keywords
horizontal mergers, involuntary unemployment, oligopoly, competition, efficiency defense