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Upward pricing pressure in horizontal mergers with fuzzy capacity constraints

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  • Núñez, Ignacio J.

Abstract

I examine the effect of fuzzy capacity constraints on horizontal mergers. In the model, each firm must turn away an exogenous fraction of its potential customers after it reaches a baseline capacity level. I derive an upward pricing pressure (UPP) formula accounting for fuzzy capacity constraints. Capacity constraints influence post-merger prices through three primary channels: (i) decreased diversion between the merging firms, which mitigates post-merger price effects; (ii) additional diversion from rejected customers coming from non-merging firms, which increases post-merger price effects; and (iii) feedback effects that mitigate post-merger price effects.

Suggested Citation

  • Núñez, Ignacio J., 2025. "Upward pricing pressure in horizontal mergers with fuzzy capacity constraints," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s016517652500480x
    DOI: 10.1016/j.econlet.2025.112643
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    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies

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