Art of the deal: The merger settlement process at the Federal Trade Commission

Malcolm B. Coate, Andrew N. Kleit

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


This paper models the modern merger review process in which an enforcement agency, here the Federal Trade Commission (FTC), interacts with the acquiring firm to determine the outcome of antitrust regulation. Our empirical implementation of a game theoretic analysis tests whether decisions are driven by the costs and benefits of the proposed enforcement initiative as well as whether firms' responses are colored by competitive and institutional considerations. With respect to firms, the results suggest that mergers are driven by the opportunity to capture efficiencies. In contrast, the structural (anticompetitive) characteristics of mergers do not seem to impact firms' litigation decisions. Firms, however, are deterred from fighting the FTC by the potential negative impact on their reputations. In addition, "hostage effects" associated with the size of the noncontroversial portion of acquisitions held up by the FTC's competitive concerns also affect firm decisions.

Original languageEnglish (US)
Pages (from-to)977-997
Number of pages21
JournalSouthern Economic Journal
Issue number4
StatePublished - Apr 2004

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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