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The Welfare Consequences of Mergers with Endogenous Product Choice

Author

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  • Michael J. Mazzeo
  • Katja Seim
  • Mauricio Varela

Abstract

Merger simulations focus on the price changes that result once previously independent competitors set prices jointly and other market participants respond. We consider the incentives for firms to adjust the set of offered products after a merger. Using a model of product choice and pricing, we conduct simulations of equilibrium market outcomes of a merger in a variety of scenarios. Product offering adjustments result in additional effects on profitability and consumer welfare not realized by price responses only, particularly when the merging parties offer relatively similar products pre‐merger. Cost synergies may furthermore entail the pro‐competitive introduction of additional products.

Suggested Citation

  • Michael J. Mazzeo & Katja Seim & Mauricio Varela, 2018. "The Welfare Consequences of Mergers with Endogenous Product Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 66(4), pages 980-1016, December.
    • Handle: RePEc:bla:jindec:v:66:y:2018:i:4:p:980-1016
    DOI: 10.1111/joie.12190
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    Cited by:

    1. Brett Hollenbeck & Renato Zaterka Giroldo, 2022. "Winning Big: Scale and Success in Retail Entrepreneurship," Marketing Science, INFORMS, vol. 41(2), pages 271-293, March.
    2. Xiaomeng Guo & Yunjuan Kuang & Chi To Ng, 2023. "To centralize or decentralize: Mergers under price and quality competition," Production and Operations Management, Production and Operations Management Society, vol. 32(3), pages 844-862, March.
    3. Christos Genakos & Andreas Lamprinidis & James Walker, 2023. "Evaluating merger effects," CEP Discussion Papers dp1921, Centre for Economic Performance, LSE.
    4. Chiou, Lesley & Kafali, E. Nilay & Rysman, Marc, 2020. "Internet use, competition, and geographical rescoping in Yellow Pages advertising," Information Economics and Policy, Elsevier, vol. 52(C).
    5. Przemysław Jeziorski, 2023. "Empirical Model of Dynamic Merger Enforcement—Choosing Ownership Caps in U.S. Radio," Management Science, INFORMS, vol. 69(8), pages 4457-4480, August.
    6. Genakos, Christos & Lamprinidis, Andreas & Walker, James, 2023. "Evaluating merger effects," LSE Research Online Documents on Economics 121325, London School of Economics and Political Science, LSE Library.
    7. Jackie M.L. Chan & Michael Irlacher & Michael Koch, 2022. "Multiproduct Mergers and the Product Mix in Domestic and Foreign Markets," Economics working papers 2022-03, Department of Economics, Johannes Kepler University Linz, Austria.
    8. Nisvan Erkal & Lijun Pan, 2022. "Horizontal Merger Analysis with Endogenous Product Range Choice," ISER Discussion Paper 1162, Institute of Social and Economic Research, Osaka University.
    9. Luis Gautier & Mahelet G. Fikru, 2024. "Welfare Impact of New Firm Acquisition," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 105-132, Springer.
    10. Justin P. Johnson & Andrew Rhodes, 2021. "Multiproduct mergers and quality competition," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 633-661, September.
    11. Meilin Ma & Ralph Siebert, 2021. "The Impact of Private Label Introduction on Assortment, Prices, and Profits of Retailers," CESifo Working Paper Series 9380, CESifo.
    12. Neelanjan Sen & Drishti Narula, 2022. "Merger under horizontal and vertical product differentiation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 509-531, December.
    13. Wesley Blundell & Kyle Wilson, 2023. "Acquisitions, product variety, and distribution in the U.S. craft beer industry," Economic Inquiry, Western Economic Association International, vol. 61(4), pages 1053-1076, October.
    14. Haucap, Justus & Stiebale, Joel, 2023. "Non-price effects of mergers and acquisitions," DICE Discussion Papers 402, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    15. Christos Genakos & Andreas Lamprinidis & James Walker, 2023. "Evaluating merger effects," POID Working Papers 072, Centre for Economic Performance, LSE.
    16. Sertsios, Giorgo, 2020. "Corporate finance, industrial organization, and organizational economics," Journal of Corporate Finance, Elsevier, vol. 64(C).
    17. Erdős, Katalin & Baczur, Roland & Kehl, Dániel & Farkas, Richárd, 2022. "When post-merger price effect becomes smoothed over time: A case of a gasoline market merger," Energy Economics, Elsevier, vol. 105(C).
    18. Enghin Atalay & Alan Sorensen & Christopher Sullivan & Wanjia Zhu, 2020. "Post-Merger Product Repositioning: An Empirical Analysis," Working Papers 20-36, Federal Reserve Bank of Philadelphia.
    19. Ivaldi, Marc & Zhang, Jiekai, 2020. "Platform Mergers: Lessons from a Case in the Digital TV Market," CEPR Discussion Papers 14895, C.E.P.R. Discussion Papers.
    20. Federico Rossi, 2023. "Mergers with endogenous product choice: The case of the ready-to-eat cereal industry," Quantitative Marketing and Economics (QME), Springer, vol. 21(1), pages 1-64, March.
    21. Marc Ivaldi & Jiekai Zhang, 2022. "Platform mergers: lessons from a case in the digital TV market," Post-Print hal-03881366, HAL.
    22. Mohammed Alyakoob & Mohammad S. Rahman & Zaiyan Wei, 2021. "Where You Live Matters: Local Bank Competition, Online Marketplace Lending, and Disparity in Borrower Benefits," Information Systems Research, INFORMS, vol. 32(4), pages 1390-1411, December.
    23. Neelanjan Sen & Uday Bhanu Sinha, 2023. "When to merge with a lower quality producer?," Journal of Economics, Springer, vol. 138(2), pages 165-188, March.

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