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Price Discrimination and Mergers

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Author Info
James D. Reitzes
David T. Levy
Abstract

The authors demonstrate how purely anticompetitive horizontal mergers can produce larger gains for merging firms than for nonmerging firms. Moreover, these anticompetitive mergers do not promote entry. These findings, which eliminate a long-standing free-rider problem from the previous merger literature, stem from the ability of firms to price discriminate under asymmetric competition. To illustrate, the authors use a spatial model of consumer preferences. Their results suggest that merger may significantly reduce consumer surplus in markets with certain characteristics, such as those where bidding occurs. The authors' model also shows that price discrimination facilitates entry deterrence in spatial markets.

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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 28 (1995)
Issue (Month): 2 (May)
Pages: 427-36
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Handle: RePEc:cje:issued:v:28:y:1995:i:2:p:427-36

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  1. Rosa Branca Esteves & Hélder Vasconcelos, 2009. "Price Discrimination under Customer Recognition and Mergers," NIPE Working Papers 23/2009, NIPE - Universidade do Minho. [Downloadable!]
  2. George Norman & Jacques-François Thisse, 1998. "Technology Choice and Market Structure: Strategic Aspects of Flexible Manufacturing," Discussion Papers Series, Department of Economics, Tufts University 9808, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  3. Teresa D. Harrison, 2007. "Consolidations and closures: an empirical analysis of exits from the hospital industry," Health Economics, John Wiley & Sons, Ltd., vol. 16(5), pages 457-474. [Downloadable!]
  4. Lars-Hendrik Röller & Johan Stennek & Frank Verboven, 2000. "Efficiency Gains from Mergers," CIG Working Papers FS IV 00-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  5. Felipe Balmaceda & Eduardo Saavedra, 2004. "Vertical Integration and Shared Facilities in Unregulated Industries," Documentos de Trabajo 195, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  6. Richard S. Higgins, 1999. "A geometric treatment of discriminatory pricing among spatially competitive suppliers, with antitrust applications," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(8), pages 437-445.
  7. Sven-Olof Fridolfsson & Johan Stennek, 2001. "Why Mergers Reduce Profits and Raise Share Prices: A Theory of Preemptive Mergers," CIG Working Papers FS IV 01-26, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
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