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Profitable Mergers in a Cournot Model of Spatial Competition

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Author Info

  • George Norman
  • Lynne Pepall

Abstract

This paper investigates the profitability and locational effects of mergers when Cournot firms compete in spatially differentiated markets. A two-firm merger is generally profitable because the merged partners can coordinate their location decisions. The merged firm locates its plants outside the market quartiles with distance from the market center being an increasing function of the number of nonmerged firms remaining at the market center. Profitable two-firm mergers reduce competitive pressure, leading to higher prices and reduced consumer surplus. The merger increases total surplus by increased locational efficiency and the increased profits of the merged and nonmerged firms.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 66 (2000)
Issue (Month): 3 (January)
Pages: 667-681

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Handle: RePEc:sej:ancoec:v:66:3:y:2000:p:667-681

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. Egger, Hartmut & Egger, Peter, 2010. "The trade and welfare effects of mergers in space," Regional Science and Urban Economics, Elsevier, vol. 40(4), pages 210-220, July.
  2. Darlene Chisholm & Margaret McMillan & George Norman, 2010. "Product differentiation and film-programming choice: do first-run movie theatres show the same films?," Journal of Cultural Economics, Springer, vol. 34(2), pages 131-145, May.
  3. Chisholm, Darlene C. & Norman, George, 2004. "Heterogeneous preferences and location choice with multi-product firms," Regional Science and Urban Economics, Elsevier, vol. 34(3), pages 321-339, May.
  4. Andreea Cosnita-Langlais, 2014. "Where to locate to escape predation?," Economics Bulletin, AccessEcon, vol. 34(2), pages 614-626.
  5. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, vol. 66(1), pages 22-32.
  6. Gupta, Barnali & Lai, Fu-Chuan & Pal, Debashis & Sarkar, Jyotirmoy & Yu, Chia-Ming, 2004. "Where to locate in a circular city?," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 759-782, June.
  7. Pal, Debashis & Sarkar, Jyotirmoy, 2002. "Spatial competition among multi-store firms," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 163-190, February.
  8. Steffen Huck & Kai A. Konrad & Wieland Müller, 2005. "Merger without Cost Advantages," CESifo Working Paper Series 1461, CESifo Group Munich.

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