An Optimal Incentive Tax Policy on Horizontal Mergers

Abstract

This paper analyzes an optimal antitrust policy on horizontal mergers under asymmetric information when antitrust agency cannot observe the post-merger private cost of merged firms. By using a discrete mechanism design approach with self-selection, this paper proposes an incentive compatible lump-sum tax scheme to provide an efficient decision on whether the application for merger should be accepted or rejected. Results show that the optimal size of lump- sum tax is not affected by the informational rent of private post- merger cost information of merged firms.