Essays on Horizontal Mergers and Dynamic Contract BreachPublic Deposited
This collection of essays on horizontal merger enforcement and dynamic contract breach addresses the question of what role, if any, should government play in enforcing the contracts of private parties? The government's appropriate role in these various settings depends, among other things, on the nature of the competition between private parties, the nature of their contracts, and the potential effects that their contracts have on third parties who are not involved in contract negotiations. In Chapter 1, I begin my study of horizontal merger enforcement in a static model of Cournot competition. I show that asymmetric information about efficiency gains from proposed horizontal mergers can lead to the optimality of approval policies that are non-monotonic in industry concentration and entry costs. The intuition is that changes in these parameters induce a selection effect in the set of mergers that are proposed, which informs an antitrust authority's posterior beliefs about the size of a proposed merger's efficiency gain. Next, Chapter 2 studies the design of optimal liquidated damages when breach of contract is possible at more than one point in time. It offers an intuitive explanation for why cancellation fees for some services (e.g., hotel reservations) are observed to increase as the time for performance approaches. I also show that even when renegotiation is possible, the efficient breach and investment decisions can be implemented with the same efficient expectation damages that implement the efficient outcomes absent renegotiation. Hence, to the extent that courts are able to calculate efficient expectation damages, or to the extent that contract parties are rational in drafting liquidated damage clauses, a court of law should do nothing more than simply enforce the contracts of private parties (assuming they impose no externalities Finally, Chapter 3 considers horizontal merger enforcement in a dynamic environment where merger, exit, entry, and investment decisions constitute a Markov perfect equilibrium. Every period a single pair-wise merger is possible, and all active firms are assumed to engage in capacity-constrained Cournot competition. I examine the structural and welfare differences between the dynamic merger enforcement policy and the myopic merger enforcement policy.