Divestitures and the screening of efficiency gains in merger control

Abstract

This paper studies how the use of divestiture in merger control can affect the revelation of information about the level of efficiency gains that a proposed merger carries. We show that a decision policy that uses costly divestiture as a screening instrument presents superior results respect to a blind policy where the decision is based only on a priori beliefs about the level of efficiency gains. This new optimal policy eliminates type I error -allowing inefficient mergers- and mitigates type II error -rejecting good mergers-. If efficiency gains take place in the divested markets as well, an “informational” efficiency offense argument may arise, forcing the competition authority not to the disclose all the level of information desired if this jeopardizes the feasibility of the remedy.