The Effects of Remedies on Merger Activity and Optimal Merger Policy under Incomplete Information

My proposed research belongs to theoretical microeconomics and deals with mergers and their approval by Competition Authorities. In my recent paper with Christian Wey, we analyzed the effect of merger remedies (i.e. divestitures of a merging firm's capit al) on merger outcomes in various settings. However, we assumed that the Competitive Authority has perfect information concerning the competitive effects of any proposed merger. My prospective academic supervisor at NHH Bergen, Lars Sorgard, did compleme ntary work and analyzed the optimal merger policy in an incomplete information setting without remedies. I plan to combine certain features of those two settings to analyze remedies' effects on the optimal merger policy and on the Competition Authority' s information search in an incomplete information setting. If the Competition Authority is unaware of the merger's efficiency and its competitive effect, the remedy proposal may be used as a signaling device. Thus, the first part of my project will disc uss which merger outcomes are possible in an incomplete information setting. Furthermore, introducing incomplete information evokes questions concerning the optimality of extreme options; that is, the antitrust authority's incentives for information acqu isition may be lower if remedies are introduced compared to a setting where mergers can either be cleared or blocked altogether. Moreover, in an incomplete information setting, the optimality of remedies may also depend on the institutional environment, w hich may be inquisitorial or adversial. Thus, the second part of my project will discuss how remedies affect the antitrust authority's information search in an incomplete information setting. Furthermore, I will investigate if these findings depend on t he institutional environment.