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Horizontal Mergers and Product Quality-

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  • Brekke, Kurt R.

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Siciliani, Luigi

    ()
    (University of York)

  • Straume, Odd Rune

    ()
    (University of Minho)

Abstract

Using a spatial competition framework with three ex ante identical firms, we study the effects of a horizontal merger on quality, price and welfare. The merging firms always reduce quality. They also increase prices if demand responsiveness to quality is sufficiently low. The non-merging firm, on the other hand, always responds by increasing both quality and prices. Overall, a merger leads to higher average prices and quality in the market. The welfare implications of a merger are not clear-cut. If the demand responsiveness to quality is sufficiently high, some consumers benefit from the merger and social welfare might also increase.

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File URL: http://brage.bibsys.no/xmlui/bitstream/handle/11250/163396/1/SAM0414.pdf
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Bibliographic Info

Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 4/2014.

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Length: 26 pages
Date of creation: 10 Feb 2014
Date of revision:
Handle: RePEc:hhs:nhheco:2014_004

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Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 959 277
Fax: 5595 9100
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Web page: http://www.nhh.no/sam/
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Keywords: Horizontal mergers; Quality; Spatial Competition.;

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