Endogenous mergers under multi-market competition
AbstractThis paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 45 (2009)
Issue (Month): 12 (December)
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Web page: http://www.elsevier.com/locate/jmateco
Mergers Multi-market competition Cournot externality Cost efficiency;
Other versions of this item:
- Tina Kao & Flavio Menezes, 2009. "Endogenous Mergers Under Multi-Market Competition," ANU Working Papers in Economics and Econometrics 2009-507, Australian National University, College of Business and Economics, School of Economics.
- Tina Kao & Flavio Menezes, 2008. "Endogenous Mergers under Multi-Market Competition," Discussion Papers Series 355, School of Economics, University of Queensland, Australia.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
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