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Welfare decreasing endogenous mergers between producers of complementary goods

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  • Barros, Pedro Pita
  • Brito, Duarte
  • Vasconcelos, Helder

Abstract

This paper investigates the competitive effects of mergers involving producers of complementary goods, which are usually considered to be welfare increasing, in a setting where: (i) consumers need to purchase two components to make up a system; and (ii) there is competition between two vertically differentiated producers of one of the components whereas the second (must-have) component is monopolized. We find that the (privately profitable) merger involving the low quality producer of one component and the monopolist producer of the other component may decrease both consumers’ surplus and social welfare for parameter values such that this merger can endogenously occur.

Suggested Citation

  • Barros, Pedro Pita & Brito, Duarte & Vasconcelos, Helder, 2018. "Welfare decreasing endogenous mergers between producers of complementary goods," International Journal of Industrial Organization, Elsevier, vol. 60(C), pages 54-95.
    • Handle: RePEc:eee:indorg:v:60:y:2018:i:c:p:54-95
    DOI: 10.1016/j.ijindorg.2018.07.001
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    Cited by:

    1. Gregor Langus & Vilen Lipatov & Jorge Padilla, 2019. "Non-horizontal mergers with investments into compatibility," CESifo Working Paper Series 7617, CESifo.

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    More about this item

    Keywords

    Mergers; Complementary goods; Vertical differentiation; Welfare effects;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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