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Unilateral Effects with Endogenous Quality

Author

Listed:
  • Brijesh P. Pinto

    (World Bank Group)

  • David S. Sibley

    (University of Texas at Austin)

Abstract

Formal merger analysis typically ignores the possibility that both prices and quality levels may be endogenous. This paper extends the traditional analysis of mergers to include both quality and price effects. Based on simulations, we find that mergers can either raise or lower the quality levels of the merging firms; non-merging firms always raise their quality levels. We find that while the standard upward pricing pressure index is a good predictor of the qualitative results of merger simulations, the equivalent index for quality performs poorly.

Suggested Citation

  • Brijesh P. Pinto & David S. Sibley, 2016. "Unilateral Effects with Endogenous Quality," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 49(3), pages 449-464, November.
    • Handle: RePEc:kap:revind:v:49:y:2016:i:3:d:10.1007_s11151-016-9504-5
    DOI: 10.1007/s11151-016-9504-5
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    References listed on IDEAS

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    1. Tenn, Steven & Froeb, Luke & Tschantz, Steven, 2010. "Mergers when firms compete by choosing both price and promotion," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 695-707, November.
    2. Lars Mathiesen & Øivind Anti Nilsen & Lars Sørgard, 2012. "A Note On Upward Pricing Pressure: The Possibility Of False Positives," Journal of Competition Law and Economics, Oxford University Press, vol. 8(4), pages 881-887.
    3. Robert Willig, 2011. "Unilateral Competitive Effects of Mergers: Upward Pricing Pressure, Product Quality, and Other Extensions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(1), pages 19-38, August.
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    Cited by:

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    2. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2017. "Horizontal mergers and product quality," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 1063-1103, November.
    3. Roberto Cellini, 2021. "Whom should I merge with? How product substitutability affects merger profitability," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 337-353, September.

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    Keywords

    Antitrust; Congestion; Mergers;
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