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Price Discrimination and Mergers

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  • James D. Reitzes
  • David T. Levy
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    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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    File URL: http://links.jstor.org/sici?sici=0008-4085%28199505%2928%3A2%3C427%3APDAM%3E2.0.CO%3B2-K
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    Bibliographic 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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    Citations

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    Cited by:
    1. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series 543, Research Institute of Industrial Economics.
    2. Esteves, Rosa Branca & Vasconcelos, Helder, 2010. "Price Discrimination under Customer Recognition and Mergers," CEPR Discussion Papers 7683, C.E.P.R. Discussion Papers.
    3. Artz, Benjamin & Heywood, John S. & McGinty, Matthew, 2009. "The merger paradox in a mixed oligopoly," Research in Economics, Elsevier, vol. 63(1), pages 1-10, March.
    4. 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.
    5. Rothschild, R. & Heywood, John S. & Monaco, Kristen, 2000. "Spatial price discrimination and the merger paradox," Regional Science and Urban Economics, Elsevier, vol. 30(5), pages 491-506, September.
    6. Fridolfsson, Sven-Olof & Stennek, Johan, 2005. "Hold-up of anti-competitive mergers," International Journal of Industrial Organization, Elsevier, vol. 23(9-10), pages 753-775, December.
    7. Sven-Olof Fridolfsson & Johan Stennek, 2005. "Why Mergers Reduce Profits And Raise Share Prices-A Theory Of Preemptive Mergers," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 1083-1104, 09.
    8. Felipe Balmaceda & Eduardo Saavedra, 2004. "Vertical Integration and Shared Facilities in Unregulated Industries," Documentos de Trabajo 195, Centro de Economía Aplicada, Universidad de Chile.
    9. Braid, Ralph M., 1999. "The price and profit effects of horizontal mergers in two-dimensional spatial competition," Economics Letters, Elsevier, vol. 62(1), pages 113-119, January.
    10. Innes, Robert, 2008. "Entry for merger with flexible manufacturing: Implications for competition policy," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 266-287, January.
    11. 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.
    12. 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.

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