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Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus

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  • Charles J. Thomas

    (Economic Science Institute & Argyros School of Business and Economics Chapman University)

Abstract

In a simple model I show consumer surplus can increase after competing sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with the conventional wisdom that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their product’s fit with the buyer’s preferences. Mergers benefit buyers by inducing stronger contest-level entry, echoing common claims from merging parties that their merger is beneficial because it creates a stronger competitor.

Suggested Citation

  • Charles J. Thomas, 2017. "Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus," Working Papers 17-07, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:17-07
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    References listed on IDEAS

    as
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    1. Charles J. Thomas, 2019. "A New Perspective on Entry in Horizontal Merger Analysis," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(3), pages 459-491, November.

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    More about this item

    Keywords

    mergers; efficiencies; consumer surplus; antitrust;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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