Bargaining Failures and Merger Policy

Abstract

We study approval rules in a model where horizontal merger proposals arise endogenously as the outcome of negotiations among the Örms in the industry. We make two main points. First, relatively ine¢ cient merger proposals succeed with positive probability. That is, the negotiation process may result in a particular merger agreement despite the existence of an alternative one that would generate higher proÖts and higher consumer surplus. Second, the antitrust authority should optimally commit to an approval rule that is more stringent for all mergers than the optimal ex-post rule