Dynamic Merger Review
We analyze the optimal dynamic policy of an antitrust authority towards horizontal mergers when merger proposals are endogenous and occur over time. Approving a currently proposed merger will affect the profitability and welfare effects of potential future mergers, the characteristics of which may not yet be known to the antitrust authority. We show that, in many cases, this apparently difficult problem has a simple resolution: an antitrust authority can maximize discounted consumer surplus by using a completely myopic merger review policy that approves a merger today if and only if it does not lower consumer surplus given the current market structure.
We thank Pat DeGraba, Glenn Ellison, Peter Eso, Joe Farrell, Ramon Fauli-Oller, Chiara Fumagalli, Tracy Lewis, Tore Nilsson, Patrick Rey, Carl Shapiro, Ron Siegel, Lucy White, members of the Toulouse Network for Information Technology, and audiences at numerous conferences and research seminars for their comments. Nocke gratefully acknowledges financial support from the National Science Foundation and the University of Pennsylvania Research Foundation. Whinston thanks the National Science Foundation, the Toulouse Network for Information Technology, and the Leverhulme Trust for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.