Antitrust Toward Horizontal Merger

From the 90s of last century, a M&A wave of horizontal mergers upsurges in China, which is due to many factors, such as economic transition, industrial restructuring, the pressure of opening-up etc. Horizontal merger has long been a keen focus of antitrust authorities, because it is prone to unilateral effect and coordinated effect. In China, although it has implemented the "antitrust law" in 2008, antitrust authorities still face great challenges when they review on the horizontal mergers based on "antitrust law", because the "antitrust law" itself is under the principle of some broad-brush terms and the corresponding rules of implementation have not yet been introduced for lacking of economic theory. So, it is the urgent need for economics to strengthen the research on antitrust toward horizontal merger for the successful implementation of the "antitrust law".Based on the stardard Cournot model and Bertrand model, we focuse on the analysis of the coordinated effect of horizontal merger and the problems of antitrust review and divestiture. The main conclusions which will give some valuable guidance to antitrust practice as follows:First, in partial tacit collusion market with symmetric cost, if a horizontal merger can not improve the insider's or mergering firm's efficiency, neither the members of the tacit collusion group nor the marginal competitors have the incentive to merger. Only and only if some conditions were met, there will be sufficient incentive for them to merger, but the merger is not facilitated to the tacit collusion because it will increases the minimum critical discounted value of the "carrot and stick" strategy to maintain the joint profit maximization of tacit collusion. In the market of cost asymmetry, a horizontal merger which is initiated by large firms will reduces their motivation to participate in tacit collusion, and increases the difficulty to maintain tacit collusion. Furthermore, if we take into account the difficulty of the firms among dynamic repeated game in what manner to choose what output (price) as a collusive output (price), the coordinated effect of horizontal merger must be lower, which conflict with the mainstream ideas of the current antitrust policy in Europe and the United States ----the horizontal merger which include big firms will facilitate collusion.Second, as horizontal merger may produce unilateral effect and coordinated effect, a large horizontal merger usually should get approval of antitrust authorities. The total welfare standard is not suitable for the standard of antitrust review, because it is not only ignored the issue of income redistribution and viewed wealth transfer from consumers to producers as a neutral, but also has the problem of logical confusion. While the consumer surplus standard is not only a standard might obtain Pareto efficiency improvement, but also can be easy to implement, so it is a viable standard of review.Third, in a market with asymmetric information, if a profitable merger can not pass the antitrust review, the insiders or mergering firms always have motivation to pay bribes. And if the insiders realize that there is a budget limitation for the supervise government department to investigate the information submitted by themselves, then, the best action is to use their information advantage to provide an excessive amount and complex information, which will reduce the probability of the supervise department to investigate and to confirm the bribery. Thus, it would make a horizontal merger, which can not reach the efficiency requirement according to the consumer surplus standard, be allowed more probable by bribe. Therefore, the key to solve the rent-seeking problem in antitrust review is to improve the quality of information submitted by insider firms.Fourth, theoretical research based on the Cournot model shows that:(1) Under symmetric situation, when the marginal cost meets certain conditions, horizontal merger may not lead to higher prices, even without divestiture. This means that the antitrust authorities should not use the divesture unless the merger will lead to rising prices; (2) If the cost function is symmetric before merger, any divestiture over zero to competitors is suitable. And any divestiture to potential entrants will lead to higher prices unless the insider can recombine assets to improve their joint producition capabilities. When there exsits such synergy effects of assets, stripping assets to the potential entrants is the preferred choice of the antitrust authorities, for it causes better market structure than stripping assets to the competitors, and it's more facilitated to restore competition and protect consumer welfare. (3) In the asymmetric case, if firms share the same technology, and the only difference is the asset quatities, then a divestiture to the potential entrants is not desirable, as this will lead to post-merger market price higher than the pre-merger equilibrium price. (4) If the technology is different, then the more advanced technology owned by the potential entrants, thus the lower the marginal costs, the more likely the potential entrants enter into the market by win the auction. When potential entrant, who has the most advanced technology, enters into the market by win the auction, it will not only benefit consumers, but also make potential entrants and mergers profitable. However, if the potential entrant's technology lagged behind the incumbents, it can not become an active competitor after entering the market, under this circumstanse, the most favarible choice for antitrust authorities is to strip the assets to the rival actived in the market. An important corollary of these findings is that the effectiveness of divestiture depends largely on whetrer it can find a suitable assignee or not.