Mergers, managerial incentives, and efficiencies

We analyze the effects of synergies from horizontal mergers on managerial incentives. In contrast to synergies, efficiency gains resulting from managerial effort are not merger specific, i.e., they may be realized by all firms before and after a merger. We show that synergies suppress managerial incentives within the non-merging firms, whereas the effect on the merged firm critically depends on the number of agents employed by its principal. An important implication for merger policy is that consumer surplus may be monotonically decreasing in the synergy level, which opposes the use of an efficiency defense in merger control. -- Managerial Incentives ; Horizontal Mergers ; Antitrust ; Productive Efficiency Gains ; Synergies ; Moral Hazard ; Efficiency Defense