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Horizontal merger of differentiated firms with product consolidation: the effect of change in substitutability

Author

Listed:
  • Nobuo Matsubayashi

    (Keio University)

  • Tatsuya Hashimoto

    (Keio University)

Abstract

This paper studies an effect of a horizontal merger where a product consolidation by the merged firm may alter the substitutability in the industry. We show that as the number of firms in the industry increases, this type of merger becomes profitable for merging firms, while unprofitable for non-merging firms. Furthermore, we show that with a moderate level of change in the substitutability, the merger of a larger number of firms with a product consolidation is not necessarily profitable for merging firms.

Suggested Citation

  • Nobuo Matsubayashi & Tatsuya Hashimoto, 2010. "Horizontal merger of differentiated firms with product consolidation: the effect of change in substitutability," Economics Bulletin, AccessEcon, vol. 30(1), pages 94-102.
    • Handle: RePEc:ebl:ecbull:eb-09-00494
    as

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    References listed on IDEAS

    as
    1. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
    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. 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, President and Fellows of Harvard College, vol. 98(2), pages 185-199.
    4. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Horizontal merger; Cournot oligopoly; Brand synergy effect;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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