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Competitive effects of horizontal mergers with asymmetric firms

Author

Listed:
  • Cuong Hung Vuong

    (MRE and LabEx Entreprendre, University of Montpellier)

  • Edmond Baranes

    (MRE and LabEx Entreprendre, University of Montpellier)

Abstract

This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.

Suggested Citation

  • Cuong Hung Vuong & Edmond Baranes, 2021. "Competitive effects of horizontal mergers with asymmetric firms," Economics Bulletin, AccessEcon, vol. 41(2), pages 734-740.
    • Handle: RePEc:ebl:ecbull:eb-21-00055
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    File URL: http://www.accessecon.com/Pubs/EB/2021/Volume41/EB-21-V41-I2-P66.pdf
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    Cited by:

    1. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Mar 2024.

    More about this item

    Keywords

    Horizontal merger; Cost-reducing; Innovation; Competition; Investment;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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