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On the social welfare effects of runner-up mergers in concentrated markets

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  • Jovanovic, Dragan
  • Wey, Christian
  • Zhang, Mengxi

Abstract

This paper argues that it cannot be taken for granted that any merger that raises consumer surplus also increases social welfare. We assume a Cournot model with homogeneous goods, linear demand, and constant marginal costs, to show that a merger can raise consumer surplus while harming social welfare. Within this framework, we show that such an outcome depends on two conditions: the merger is between small firms (i.e., relatively inefficient firms) and it reduces concentration; that is, a constellation which can be characterized as a "runner-up" merger.

Suggested Citation

  • Jovanovic, Dragan & Wey, Christian & Zhang, Mengxi, 2021. "On the social welfare effects of runner-up mergers in concentrated markets," DICE Discussion Papers 371, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:371
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    References listed on IDEAS

    as
    1. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
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    4. Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
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    6. McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-187, June.
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    8. Wang, X. Henry & Zhao, Jingang, 2007. "Welfare reductions from small cost reductions in differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 173-185, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Runner-up Mergers; Efficiencies; Oligopoly; welfare;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • 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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