Maverick Theory
- Maverick theory explains why a particular merge harms competition.
- The firm that stops when prices are raised (e.g. in the four corner gas-station example) is the maverick (this implies that the firms have already solved their cartel problems).
Mavericks exist
for many reasons:
- Selling complementary services
- Relative excess capacity
- Lower average cost
If two firms merge
that doesn't involve the maverick, it shouldn't alter the price,
unless it increases the ability of the merged firm to punish the
maverick, but if the maverick merges it will presumably increase
the maverick’s willingness to increase prices.
Mavericks are not
the favored theory in mergers. The predominant theory is that of
Judge Posner in Hospital Corp. Nonetheless, FTC
v. Arch Coal, Inc. (D.D.C. 2004) acknowledged that a
high-cost coal producer could not have restricted increased prices in
the industry and denied the FTC’s request for a preliminary
injunction denying the acquisition.
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