Economies as an Anti-Trust Defense: The Welfare Tradeoffs

Abstract

Suppose that a merger (or other combination) is proposed that yields economies but at the same time increases market power. Can the courts and antitrust agencies safely rely, in these circumstances, on a literal reading of the law which prohibits mergers ‘where in any line of commerce or any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly’, 1 or does this run the risk of serious economic loss? In the usual merger where both effects are insubstantial this problem is absent. 2 But in the occasional case where efficiency and market power consequences exist, can economies be dismissed on the grounds that market power effects invariably dominate ? If they cannot, then a rational treatment of the merger question requires that an effort be made to establish the allocative implications of the scale economy and market power effects associated with the merger.

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