Merger remedies involving restructuring costs in a Cournot framework

Abstract

We analyze the effects of structural merger remedies in a Cournot framework. In particular, we extend a basic model approach by introducing restructuring investments that are necessary to implement divestiture remedies. We assume that such investments increase the merging parties’ marginal cost of production and show that they therefore reinforce the effect of divestitures on post-merger competition. As a consequence, if the competition authority does not take restructuring investments into account while fixing the remedies, the size of the divestiture will be too large and hence over-fix the competition issue. This not only causes an unduly increase of the market power of the competitor but also reduces the synergy gains of the merging parties and therefore hurts consumers in the affected markets.