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A Note on the Welfare Effects of Horizontal Mergers in Asymmetric Linear Oligopolies

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Author Info

  • Steven Heubeck

    (Ohio State University)

  • Donald J. Smythe

    (Department of Economics, Washington and Lee University)

  • Jingang Zhao

    (University of Saskatchewan)

Abstract

This paper extends Farrell and Shapiro (1990) and Levin (1990) by providing necessary and sufficient conditions for horizontal mergers to be both profitable and welfare-enhancing when market demand and firms¡¯ costs are linear. We show that profitable, welfare-enhancing mergers are likely to involve firms whose combined pre-merger market shares exceed 50%, and that mergers may be profitable and welfare-enhancing even when they do not generate any direct cost efficiencies. Our results suggest that any approach to evaluating the welfare effects of horizontal mergers which does not account for industry-wide strategic effects is seriously flawed.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 7 (2006)
Issue (Month): 1 (May)
Pages: 29-47

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Handle: RePEc:cuf:journl:y:2006:v:7:i:1:p:29-47

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Related research

Keywords: Horizontal merger; welfare effect; Antitrust policy;

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References

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  1. White, Lawrence J, 1987. "Antitrust and Merger Policy: A Review and Critique," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 13-22, Fall.
  2. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 23-40, Fall.
  3. Dalkir, Serdar & Logan, John W. & Masson, Robert T., 2000. "Mergers in symmetric and asymmetric noncooperative auction markets: the effects on prices and efficiency," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 383-413, April.
  4. Salop, Steven C, 1987. "Symposium on Mergers and Antitrust," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 3-12, Fall.
  5. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-26, March.
  6. Zhang, Anming & Zhang, Yimin, 1996. "Stability of a Cournot-Nash equilibrium: The multiproduct case," Journal of Mathematical Economics, Elsevier, vol. 26(4), pages 441-462.
  7. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  8. Jingang Zhao, 1999. "Cost Savings and the Optimal Market Structure," Working Papers 99-08, Ohio State University, Department of Economics.
  9. Schmalensee, Richard, 1987. "Horizontal Merger Policy: Problems and Changes," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 41-54, Fall.
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Citations

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Cited by:
  1. Joan Canton & Maia David & Bernard Sinclair-Desgagné, 2007. "Environmental regulation and mergers within the eco-industry," Working Papers 2007/01, INRA, Economie Publique.
  2. BOCCARD, Nicolas, 2009. "On efficiency, concentration and welfare," CORE Discussion Papers 2009040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. X. Wang & Jingang Zhao, 2009. "On the efficiency of indirect taxes in differentiated oligopolies with asymmetric costs," Journal of Economics, Springer, vol. 96(3), pages 223-239, April.
  4. Jeddy, Mohamed & Larue, Bruno, 2012. "Mergers, concurrent marketing mechanisms and the performance of sequential auctions," Working Papers 126945, Structure and Performance of Agriculture and Agri-products Industry (SPAA).

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