The use of efficiency measures to compute welfare improving: an application for competition policy
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 14 May 2018
Abstract
Purpose
Merger approving focuses on both market power and welfare gains. In general, the approval process does not include a comparative efficiency analysis. This paper aims to introduce this dimension and show its potential.
Design/methodology/approach
Based on the analysis of past bank mergers, the authors examine expected and actual efficiency gains. This paper measures the potential (ex ante) and ex post efficiency gains of bank mergers by using data envelopment analysis (DEA).
Findings
The authors find some (approved) mergers were promised and yielded efficiency gains while others did not.
Research limitations/implications
DEA does not allow testing statistically the significance of the presumed relationship between variables.
Practical implications
The authors conclude that some mergers that took place would not have been approved had an efficiency analysis been made.
Social implications
Regulators and/or competition authorities could approve mergers which do not increase efficiency.
Originality/value
To date, efficiency frontier analysis has not been performed for merger approval. It implies that the regulator or competition authority could allow mergers with no clear social gains.
Keywords
Citation
Ferro, G. and León, S. (2018), "The use of efficiency measures to compute welfare improving: an application for competition policy", Journal of Financial Regulation and Compliance, Vol. 26 No. 2, pp. 227-245. https://doi.org/10.1108/JFRC-09-2016-0072
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited