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On the social welfare effects of runner-up mergers in concentrated markets

Author

Listed:
  • Dragan Jovanovic

    (Deutsche Telekom AG)

  • Christian Wey

    (Heinrich-Heine University Düsseldorf)

  • Mengxi Zhang

    (Heinrich-Heine University Düsseldorf)

Abstract

This paper argues that it cannot be taken for granted that any merger that raises consumer surplus also increases social welfare. We assume a Cournot model with homogeneous goods, linear demand, and constant marginal costs, to show that a merger can raise consumer surplus while harming social welfare. Within this framework, we show that such an outcome depends on two conditions: the merger is between relatively small firms and it reduces concentration; that is, a constellation which can be characterized as a “runner-up†merger.

Suggested Citation

  • Dragan Jovanovic & Christian Wey & Mengxi Zhang, 2021. "On the social welfare effects of runner-up mergers in concentrated markets," Economics Bulletin, AccessEcon, vol. 41(4), pages 2330-2337.
    • Handle: RePEc:ebl:ecbull:eb-21-00801
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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