Merger Bonds: A New Remedy for an Old Problem

Abstract

Merger control is beset with uncertainty. Mergers promise to unlock potential economic efficiencies yet introduce the prospect that the newly merged firms may behave anti-competitively. Denying a merger for which efficiencies outweigh anti-competitive harm forgoes socially beneficial combinations. The opposite is equally true: approving a merger that yields few efficiencies but leads to anti-competitive conduct harms consumers. Competition authorities, as regulators, must weigh the probabilities of these future outcomes, potential efficiencies versus potential anti-competitive conduct, when making an ex-ante decision whether to challenge a transaction. That is, they must take a decision before the uncertainty is resolved. This paper introduces a novel behavioural remedy, referred to as a merger bond, that may help alleviate and transfer some of the risks arising from ex-ante merger control. Merger bonds are financial contracts that act as assurances against anti-competitive conduct, bridging the gap between ex-ante and ex-post merger review. They offer several advantages that complement existing merger control remedies.