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Price Discrimination and Mergers

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  • James D. Reitzes
  • David T. Levy

Abstract

The authors demonstrate how purely anticompetitive horizontal mergers can produce larger gains for merging firms than for nonmerging firms. Moreover, these anticompetitive mergers do not promote entry. These findings, which eliminate a long-standing free-rider problem from the previous merger literature, stem from the ability of firms to price discriminate under asymmetric competition. To illustrate, the authors use a spatial model of consumer preferences. Their results suggest that merger may significantly reduce consumer surplus in markets with certain characteristics, such as those where bidding occurs. The authors' model also shows that price discrimination facilitates entry deterrence in spatial markets.

Suggested Citation

  • James D. Reitzes & David T. Levy, 1995. "Price Discrimination and Mergers," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 427-436, May.
  • Handle: RePEc:cje:issued:v:28:y:1995:i:2:p:427-36
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