Merges in Congested Markets
AbstractThis paper analyses the effects of mergers on price and welfare in markets facing congestion and derives conditions under which a merger is consumer welfare improving, even in the absence of marginal cost savings. In our context a merger basically has two effects. First, it obviously increases market concentration. Second, it makes the new entity a more aggressive competitor. The paper shows that mergers that entail a more efficient use of installed capacity can result in important price reductions. Moreover, even when the post-merger price of the new merged entity increases, the outsiders may respond by decreasing prices and the overall effect may be a consumer welfare gain. Thus, the current merger policy may be inappropriate in these types of markets. From a policy perspective it could thus be argued that the competition authorities should demand less in terms of “standard” merger-efficiencies in order to approve the merger in a congested market, and especially when there are synergies in terms of capacity utilization.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2004:8.
Length: 21 pages
Date of creation: 20 Aug 2004
Date of revision:
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Phone: +46 8 16 20 00
Fax: +46 8 16 14 25
Web page: http://www.ne.su.se/
More information through EDIRC
mergers; congestion; capacity utilization;
Find related papers by JEL classification:
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-23 (All new papers)
- NEP-COM-2004-08-23 (Industrial Competition)
- NEP-IND-2004-08-31 (Industrial Organization)
- NEP-LAW-2004-08-23 (Law & Economics)
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