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Spatial competition and merging incentives when firms produce complements

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  • Borla, Stefania
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    Abstract

    In a model of spatial competition, we show that complementarities can benefit the parties to a merger more than any outsiders thus leading to higher concentration. The driving force is the negative demand externality imposed by the merging firms on the non-merging units in the same locations, which tends to counteract the increase in the composite price (or overall cost of shopping) in the locations with a merger. Since however some of the outsiders are harmed, we also consider how the possibility of a subsequent merger by the initially harmed outsiders may change the incentives for the first integration. Our results show that if the number of firms is sufficiently large, then the initial merger will still be carried through. It follows then that there would be a real need for regulation: market power and market interactions may provide firms with incentives to merge, just like efficiency gains do.

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    Bibliographic Info

    Article provided by Elsevier in its journal Regional Science and Urban Economics.

    Volume (Year): 42 (2012)
    Issue (Month): 1-2 ()
    Pages: 221-229

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    Handle: RePEc:eee:regeco:v:42:y:2012:i:1:p:221-229

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    Web page: http://www.elsevier.com/locate/regec

    Related research

    Keywords: Spatial competition; Complementarities; Merger incentives;

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    References

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    1. Beggs, Alan W, 1994. "Mergers and Malls," Journal of Industrial Economics, Wiley Blackwell, vol. 42(4), pages 419-28, December.
    2. Lommerud, Kjell Erik & Sorgard, Lars, 1997. "Merger and product range rivalry," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 21-42, November.
    3. AMIR, Rabah & DIAMANTOUDI, Effrosyni & XUE, Licun, 2003. "Merger performance under uncertain efficiency gains," CORE Discussion Papers 2003038, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. 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.
    5. Röller, Lars-Hendrik & Stennek, Johan & Verboven, Frank, 2000. "Efficiency Gains from Mergers," Working Paper Series 543, Research Institute of Industrial Economics.
    6. Massimo MOTTA & Helder VASCONCELOS, 2003. "Efficiency Gains and Myopic Antitrust Authority in a Dynamic Merger Game," Economics Working Papers ECO2003/23, European University Institute.
    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. Brito, Duarte, 2003. "Preemptive mergers under spatial competition," International Journal of Industrial Organization, Elsevier, vol. 21(10), pages 1601-1622, December.
    9. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November.
    10. Vickrey, William S. & Anderson, Simon P. & Braid, Ralph M., 1999. "Spatial competition, monopolistic competition, and optimum product diversity," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 953-963, October.
    11. repec:fth:iniesr:543 is not listed on IDEAS
    12. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    14. Ziss, Steffen, 2001. "Horizontal mergers and delegation," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 471-492, March.
    15. Gupta, Barnali & Pal, Debashis & Sarkar, Jyotirmoy, 1997. "Spatial Cournot competition and agglomeration in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 27(3), pages 261-282, June.
    16. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
    17. 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.
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    Cited by:
    1. Emilie Dargaud & Carlo Reggiani, 2012. "On the Price Effects of Horizontal Mergers : A Theoretical Interpretation," Working Papers 1222, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.

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