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Mergers in Imperfectly Segmented Markets

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Author Info
Pio Baake
Christian Wey

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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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Publisher 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
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Handle: RePEc:diw:diwwpp:dp919

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

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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This page was last updated on 2009-12-19.

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