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Product differentiation, cost-reducing mergers, and consumer welfare

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Author Info
George Norman
Lynne Pepall
Daniel Richards

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Abstract

Cost synergies are an explicitly recognized justification for a two-firm merger, and empirical techniques are now widely used to assess the impact of cost-reducing mergers on prices and welfare in the post-merger market. We show that if the merger occurs in a vertically product differentiated market, then the merger will lead to a reduction in product offerings that limits the usefulness of pre-merger empirical estimates. Indeed, we further show that in such markets, two-firm mergers will typically lead to higher prices regardless of the merger's cost savings.

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File URL: http://economics.ca/cgi/xms?jab=v38n4/06.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 38 (2005)
Issue (Month): 4 (November)
Pages: 1204-1223
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cje:issued:v:38:y:2005:i:4:p:1204-1223

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Find related papers by JEL classification:
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Anderson, S. & De Palma, A. & Thisse, J-F., 1989. "Social Surplus And Profitability Under Different Spacial Pricing Policies," CORE Discussion Papers 1989010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Lynne M. Pepall, 2002. "The Simple Economics of Brand Stretching," Journal of Business, University of Chicago Press, vol. 75(3), pages 535-552, July. [Downloadable!]
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  3. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  4. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June. [Downloadable!] (restricted)
  5. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Blackwell Publishing, vol. 49(1), pages 3-13, January. [Downloadable!] (restricted)
  6. Aviv Nevo, 2000. "Mergers with Differentiated Products: The Case of the Ready-to-Eat Cereal Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 395-421, Autumn.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Darlene C. Chisholm & George Norman, 2002. "Spatial Competition and Demand: An Application to Motion Pictures," Discussion Papers Series, Department of Economics, Tufts University 0216, Department of Economics, Tufts University. [Downloadable!]
  2. Richard Dagen & Daniel Richards, 2006. "Merger Theory and Evidence: The Baby-Food Case Reconsidered," Discussion Papers Series, Department of Economics, Tufts University 0602, Department of Economics, Tufts University. [Downloadable!]
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