Merger Remedies

Abstract

Merger remedies have increased in frequency and expanded in scope, all with the purpose of permitting 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 corroborative evidence is surveyed.