cartel, regulationWhat criteria do governments use to decide whether a proposed corporate merger should be allowed? Does spreading patents (in the medium term) across different competing companies have a role? To what degree is competition and merger policy driven by long-term research & development possibilities, and how doe this differ between new hi-tech industries such as Nanotechnology and Biomedicine, versus other industries such as cars or furniture?
There is an entire wikipedia article on "competition law theory" devoted to this question.
In short, the basic criteria are driven by maximizing social welfare, or delivering allocative, productive and dynamic efficiency. Excessive market power causes a deadweight loss due to decreased production. Hence the central question for an antitrust authority is whether the merger of two firms will lead to "excessive" market power, or whether economies of scale will lead to improvements in productive efficiency.
In the U.S., the Federal Trade Commission’s “Horizonal Merger Guidelines and the 2010 version are authoritative and accessible to a student with an intermediate microeconomics background:
These Guidelines outline the principal analytical techniques, practices, and the enforcement policy of the Department of Justice and the Federal Trade Commission (the “Agencies”) with respect to mergers and acquisitions involving actual or potential competitors (“horizontal mergers”) under the federal antitrust laws.1 The relevant statutory provisions include Section 7 of the Clayton Act, 15 U.S.C. § 18, Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Most particularly, Section 7 of the Clayton Act prohibits mergers if “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”
The Agencies seek to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral. Most merger analysis is necessarily predictive, requiring an assessment of what will likely happen if a merger proceeds as compared to what will likely happen if it does not. Given this inherent need for prediction, these Guidelines reflect the congressional intent that merger enforcement should interdict competitive problems in their incipiency and that certainty about anticompetitive effect is seldom possible and not required for a merger to be illegal.
NB: The FTC’s statement on ‘Unfairness’ can shed light on the criteria for the consumer side of the market (correct and transparent information is key to the functioning of a competitive market).
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