A Note on the Welfare Effects of Horizontal Mergers in Asymmetric Linear Oligopolies
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.
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- Jingang Zhao, 1999. "Cost Savings and the Optimal Market Structure," Working Papers 99-08, Ohio State University, Department of Economics.
- Farrell, J. & Shapiro, C., 1988.
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- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
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- 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.
- Levin, D., 1988.
"Horizontal Mergers: The 50 Percent Bench-Mark,"
19, Houston - Department of Economics.
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- 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.
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