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Horizontal Mergers under Bertrand Competition

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Abstract

This paper draws on recent results from the study of hybrid games and multi-product oligopolies to analyze horizontal mergers under Bertrand competition. We identify a set of linear Bertrand models in which a horizontal merger will reduce both the outsiders' profits and consumer surplus when the insiders' cost savings are sufficiently large. We also show that mergers in Bertrand models will normally increase the insiders' profits even without generating any cost-savings. Such results suggest that the increase in the insiders' profits may arise at the expense of rival firms and consumers, and thus raise new concerns about the anti-competitive effects of mergers under price competition.

Suggested Citation

  • X. Henry Wang & Jingang Zhao, 2021. "Horizontal Mergers under Bertrand Competition," Working Papers 2108, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:2108
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    More about this item

    Keywords

    Horizontal merger; Bertrand competition; consumer surplus;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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