Ec4333 2007 Lecture 8

Mergers and Acquisitions

Lecture 8

Market Size Matters

Facts

Handout

Economic Logic Verbally

Liberalise markets → De-fragmentation →

Pro-competitive effect → Industrial restructuring →

(M&A, etc.)

Monopoly case

Handout

BE-COMP Diagram

Handout

Economic Logic

State Aid (Subsidies)

Restructuring Prevention

Handout

Restructuring Prevention: Welfare Impact

Change producer surplus = zero (profit is zero pre and post).

Change consumer surplus = a+d.

Subsidy cost = a-c.

Total impact = d+c.

EU policies on ‘State Aids’

1957 Treaty of Rome bans state aid that provides firms with an unfair advantage and thus distorts competition.

Anti-Competitive Behaviour

price

Totalsales

Demand curve

Number of firms

Mark-up

COMP

BEFT

pB

Perfectcollusion

Partialcollusion

E”

nB

µmono

B

n=1 n”

pmono

E”p”

B

CB

A

EU Competition Policy

Next Week

Inequality in the EU

Read: Michie, J., `Unemployment in Europe', in Amin and Tomaney, eds. Behind the Myth of European Union: Prospects for Cohesion, Routledge Press, 1995, pgs. 51--82. 337.14 AMI