Product differentiation, cost-reducing mergers, and consumer welfare
AbstractCost 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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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 38 (2005)
Issue (Month): 4 (November)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Other versions of this item:
- George Norman & Lynne Pepall & Daniel Richards, 2002. "Product Differentiation, Cost-Reducing Mergers, and Consumer Welfare," Discussion Papers Series, Department of Economics, Tufts University 0214, Department of Economics, Tufts University.
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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