Remedies vs. Extreme Options in Merger Control

Abstract

We investigate how remedies in merger control aect information acquisition by an antitrust agency. We identify conditions under which an extreme options regime which does not allow for remedies improves information acquisition by the agency which increases consumer surplus. The legislator (principal) and the agency share the same objective function with the only exception that the lat- ter must bear information costs. When remedies are not feasible, then the agency's incentive to acquire information is relatively large as a false decision tends to have large adverse eects. When remedies are feasible, the intermediate option does not involve such risks, so that incentives to acquire information decreases. However, our results depend crucially on the institutional environment. In the case of an adversial system, information acquisition incentives are not per se lower if remedies are feasible. � We thank Lars Sorgard and Deszo Szalay for their helpful comments. The paper bene…ted from