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Mergers in Imperfectly Segmented Markets

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Author Info

  • Pio Baake
  • Christian Wey

Abstract

We present a model with firms selling (homogeneous) products in two imperfectly segmented markets (a "high-demand" and a "low-demand" market). Buyers are mobile but restricted by transportation costs, so that imperfect arbitrage occurs when prices differ in both markets. We show that equilibria are distorted away from Cournot outcomes to prevent consumer arbitrage. Furthermore, a merger can lead to an equilibrium in which only the "high-demand" market is served. This is more likely (i) the lower consumers' transportation costs and (ii) the higher the concentration of the industry. Therefore, merger incentives are much larger than standard analysis suggests.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.338490.de/dp919.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 919.

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Length: 35 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwwpp:dp919

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Related research

Keywords: Imperfect Market Segmentation; Oligopoly; Price Discrimination; Consumer Arbitrage; Mergers;

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