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Equilibrium mergers in a composite good industry with efficiencies

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  • PARDO-GARCIA, Christina

    ()
    (Department of Applied Economics, University of Valencia, Spain)

  • SEMPERE-MONERRIS, Jose J.

    ()
    (Department of Economic Analysis and ERI-CES, University of Valencia, Spain; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

Abstract

This paper studies equilibrium merging behavior in composite good industries. Component producers face the option to either merge with a similar component producer (horizontal merger) or a complementary one (complementary merger) of a composite good. Focusing only on strategic reasons, complementary mergers arise at equilibrium only when composite goods are very differentiated while horizontal mergers otherwise. Next, when efficiencies are considered, the level of marginal cost saving required for a horizontal merger in a composite industry to result in a non- increase in the upward price pressure index (UPPI) is greater as compared with the one in a regular industry. This result can be used by antitrust authorities to be more demanding when dealing with horizontal mergers in composite goods industries.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013067.

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Date of creation: 31 Dec 2013
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Handle: RePEc:cor:louvco:2013067

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Keywords: composite goods; substitutes; complements; horizontal merger; complementary merger; efficiency effects; UPPI; diversion ratio;

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