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Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus

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  • Charles J. Thomas

Abstract

In a standard procurement model I show that consumer surplus can increase after rival sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with conventional wisdom in antitrust that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their cost of fulfilling the contract. Mergers benefit buyers by inducing stronger contest‐level entry, echoing common claims from merging parties that their merger improves competition by creating a stronger competitor.

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  • Charles J. Thomas, 2021. "Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 730-741, September.
    • Handle: RePEc:bla:jindec:v:69:y:2021:i:3:p:730-741
    DOI: 10.1111/joie.12249
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    1. Charles J. Thomas, 2019. "A New Perspective on Entry in Horizontal Merger Analysis," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(3), pages 459-491, November.
    2. Bakaouka, Elpiniki & Escrihuela-Villar, Marc & Ferrarese, Walter, 2024. "Horizontal mergers with Bertrand competition and convex costs," Mathematical Social Sciences, Elsevier, vol. 128(C), pages 60-67.

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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