How much efficiency gains and price reductions to put as ingredients into an efficiency defense? 'Quanto Basta'

Potential e.ciency gains due to a merger can be used by competition authorities to judge upon proposed mergers. In a world where agents' e.orts, observable or unobservable, a.ect the success of a production cost reducing project that may be conducted as a stand-alone firm or in a merger, we characterize the merger decision and the type of errors a competition authority may make when it relies on an e.ciency defense. In addition, we show that the occurrence of either type of errors is always smaller under the unobservable e.orts assumption, than under the observable e.orts one