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A Note on the Welfare Effects of Horizontal Mergers in Asymmetric Linear Oligopolies

Author

Listed:
  • Steven Heubeck

    (Ohio State University)

  • Donald J. Smythe

    (Department of Economics, Washington and Lee University)

  • Jingang Zhao

    (University of Saskatchewan)

Abstract

This paper extends Farrell and Shapiro (1990) and Levin (1990) by providing necessary and sufficient conditions for horizontal mergers to be both profitable and welfare-enhancing when market demand and firms¡¯ costs are linear. We show that profitable, welfare-enhancing mergers are likely to involve firms whose combined pre-merger market shares exceed 50%, and that mergers may be profitable and welfare-enhancing even when they do not generate any direct cost efficiencies. Our results suggest that any approach to evaluating the welfare effects of horizontal mergers which does not account for industry-wide strategic effects is seriously flawed.

Suggested Citation

  • Steven Heubeck & Donald J. Smythe & Jingang Zhao, 2006. "A Note on the Welfare Effects of Horizontal Mergers in Asymmetric Linear Oligopolies," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 29-47, May.
  • Handle: RePEc:cuf:journl:y:2006:v:7:i:1:p:29-47
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    References listed on IDEAS

    as
    1. Zhang, Anming & Zhang, Yimin, 1996. "Stability of a Cournot-Nash equilibrium: The multiproduct case," Journal of Mathematical Economics, Elsevier, vol. 26(4), pages 441-462.
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    3. Fisher, Franklin M, 1987. "Horizontal Mergers: Triage and Treatment," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 23-40, Fall.
    4. Levin, Dan, 1990. "Horizontal Mergers: The 50-Percent Benchmark," American Economic Review, American Economic Association, vol. 80(5), pages 1238-1245, December.
    5. Salop, Steven C, 1987. "Symposium on Mergers and Antitrust," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 3-12, Fall.
    6. Jingang Zhao, 1999. "Cost Savings and the Optimal Market Structure," Working Papers 99-08, Ohio State University, Department of Economics.
    7. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
    8. Dalkir, Serdar & Logan, John W. & Masson, Robert T., 2000. "Mergers in symmetric and asymmetric noncooperative auction markets: the effects on prices and efficiency," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 383-413, April.
    9. Schmalensee, Richard, 1987. "Horizontal Merger Policy: Problems and Changes," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 41-54, Fall.
    10. White, Lawrence J, 1987. "Antitrust and Merger Policy: A Review and Critique," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 13-22, Fall.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Joan Canton & Maia David & Bernard Sinclair-Desgagné, 2007. "Environmental regulation and mergers within the eco-industry," Working Papers 2007/01, INRA, Economie Publique.
    2. Thomas Giebe & Miyu Lee, 2015. "Competitors In Merger Control: Shall They Be Merely Heard Or Also Listened To?," SFB 649 Discussion Papers SFB649DP2015-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Jeddy, Mohamed & Larue, Bruno, 2012. "Mergers, concurrent marketing mechanisms and the performance of sequential auctions," Working Papers 126945, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    4. X. Wang & Jingang Zhao, 2009. "On the efficiency of indirect taxes in differentiated oligopolies with asymmetric costs," Journal of Economics, Springer, vol. 96(3), pages 223-239, April.
    5. BOCCARD, Nicolas, 2009. "On efficiency, concentration and welfare," CORE Discussion Papers 2009040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    Horizontal merger; welfare effect; Antitrust policy;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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