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Merger, partial collusion and relocation

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  • Posada, Pedro

    ()
    (Department of Economics, University of Warwick)

  • Straume, Odd Rune

    ()
    (University of Bergen, Department of Economica)

Abstract

We set up a three-firm model of spatial competition to analyse how a merger affects the incentives for relocation, and conversely, how the possibility of relocation affects the profitability of the merger, particularly for the non-participating firm. The analysis is carried out for the assumptions of both mill pricing and price discrimination, and we also consider the case of partial collusion. For the case of mill pricing, a merger will generally induce the merger participants to relocate, but the direction of relocation is ambiguous, and dependent on the degree of convexity in the consumers’ transportation cost function. We also identify a set of parameter values for which the free-rider effect of a merger vanishes, implying that the possibility of relocation could solve the ‘merger paradox’, even in the absence of price discrimination.

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Bibliographic Info

Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 23/02.

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Length: 24 pages
Date of creation: 22 Dec 2002
Date of revision:
Handle: RePEc:hhs:bergec:2002_023

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Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
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Web page: http://www.uib.no/econ/en
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Keywords: Spatial competition; Merger; Relocation; Partial collusion.;

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Cited by:
  1. Rasch, Alexander & Wambach, Achim, 2009. "Internal decision-making rules and collusion," Journal of Economic Behavior & Organization, Elsevier, vol. 72(2), pages 703-715, November.
  2. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 325-349, December.
  3. Steffen Huck & Kai A. Konrad & Wieland Müller, 2005. "Merger without Cost Advantages," CESifo Working Paper Series 1461, CESifo Group Munich.
  4. Hartmut Egger & Peter Egger, 2008. "The Trade and Welfare Effects of Mergers in Space," CESifo Working Paper Series 2217, CESifo Group Munich.
  5. John Heywood & Guangliang Ye, 2013. "Sequential entry and merger in spatial price discrimination," The Annals of Regional Science, Springer, vol. 50(3), pages 841-859, June.
  6. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, vol. 66(1), pages 22-32.
  7. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2014. "Horizontal Mergers and Product Quality," NIPE Working Papers 07/2014, NIPE - Universidade do Minho.
  8. Alain Egli, 2005. "On Stability in Competition: Tying and Horizontal Product Differentiation," Diskussionsschriften dp0501, Universitaet Bern, Departement Volkswirtschaft.
  9. Alexander Rasch, 2012. "A note on mergers and relocation," Journal of Economics, Springer, vol. 107(3), pages 277-282, November.

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