This paper examines welfare changes before the introduction of more competition in technologically related markets. We develop a simple two-market duopoly with product differentiation where a multi-product firm competes with a different single-product firm in each market. Two competition enhancing measures are considered, divestiture of the multi-product firm and entry of single-product firms in one of the markets. The results obtained indicate that more competition may lead to a welfare reduction. Our analysis points out the relevance of the type and size of economies of scope, the particular way of introducing more competition and the degree of product differentiation.
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Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
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