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Losses from Horizontal Merger: an Extension to a Successive Oligopoly Model with Product Differentiation

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  • Ramon Fauli-Oller
  • Borja Mesa-Sánchez

Abstract

type="main"> This paper generalizes the model of Salant et al. (1983; Quarterly Journal of Economics, Vol. 98, pp. 185–199) to a successive oligopoly model with product differentiation. Upstream firms produce differentiated goods, retailers compete in quantities, and supply contracts are linear. We show that if retailers buy from all producers, downstream mergers do not affect wholesale prices. Our result replicates that of Salant's, where mergers are not profitable unless the size of the merged firm exceeds 80 per cent of the industry. This result is robust to the type of competition.

Suggested Citation

  • Ramon Fauli-Oller & Borja Mesa-Sánchez, 2015. "Losses from Horizontal Merger: an Extension to a Successive Oligopoly Model with Product Differentiation," Manchester School, University of Manchester, vol. 83(5), pages 604-621, September.
    • Handle: RePEc:bla:manchs:v:83:y:2015:i:5:p:604-621
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    References listed on IDEAS

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