Merger Remedies

• Date: 01 June 2017
• Published date: 01 June 2017
• DOI: 10.1177/0003603X17708365
• Author: John Kwoka
• Subject Matter: Articles

Article

Merger Remedies: An Incentives/

Constraints Framework

John Kwoka*

Abstract

Merger remedies have increased in frequency and expanded in scope, all with the purpose of per-

mitting legitimate consolidation while preserving the premerger degree of competition in an industry.

While considerable attention has been paid to the practical issues to be addressed in developing

remedies, there has been no integrated framework for designing and evaluating such remedies. This

article proposes such a framework. It builds on the theory of a profit-maximizing firm, and embeds

structural and conduct remedies into that framework to better understand how firm behavior is, or is

not, thereby changed. Structural remedies are shown to alter a firm’s incentives whereas conduct

remedies impose constraints on its behavior. This incentive/constraint perspective highlights the

strengths and limitations of both types of remedies, the comparative advantage of structural remedies,

and also circumstances under which conduct remedies are more likely to be effective. Some corro-

borative evidence is surveyed.

Keywords

mergers, divestitures, remedy policy

I. Introduction

Remedies rather than outright challenges have become the dominant method for resolving competi-

tively problematic mergers. In the U.S., remedies account for nearly two-thirds of problematic merg-

ers, with fewer than 10%resolved through litigation.

1

The same focus on remedies is apparent in other

jurisdictions. In the EU, of the mergers determined by DG Comp to be anticompetitive, more than ten

times as many are resolved through remedies as are actually prohibited.

2

Over past six to eight years,

China’s MOFCOM has resolved dozens of mergers through the use of remedies.

*Northeastern University, Boston, MA, USA

Corresponding Author:

John Kwoka, Northeastern University, Boston, MA 02115, USA.

Email: j.kwoka@northeastern.edu

1. The remainder are abandoned by the parties in the face of likely agency opposition. Steven Tenn & John Yun, The Success of

Divestitures in Merger Enforcement,29I

NT’LJ. INDUS.ORG. 273–82. (2011).

2. Tomaso Duso, Kl aus Gugler, & Burcin Yurtoglu, EU Merger Remedies: A Preli minary Empirical Assessment,in THE

POLITICAL ECONOMY OF ANTITRUST,CONTRIBUTIONS TO ECONOMIC ANALYSIS 303–48 (Johan Stennek & Vivek Ghosal eds., 2007).

The Antitrust Bulletin

2017, Vol. 62(2) 367-381

ªThe Author(s) 2017

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DOI: 10.1177/0003603X17708365

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