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The effect of horizontal mergers, when firms compete in prices and investments

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  • Motta, Massimo
  • Tarantino, Emanuele

Abstract

Motivated by a number of high-profile antitrust cases, we study mergers when firms offer differentiated products and compete in prices and investments. Since the net effect of the merger is a priori ambiguous, we use aggregative game theory to sign it: we find that absent efficiency gains, the merger always reduces total investments and consumer surplus. We also prove that there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.

Suggested Citation

  • Motta, Massimo & Tarantino, Emanuele, 2021. "The effect of horizontal mergers, when firms compete in prices and investments," International Journal of Industrial Organization, Elsevier, vol. 78(C).
  • Handle: RePEc:eee:indorg:v:78:y:2021:i:c:s0167718721000679
    DOI: 10.1016/j.ijindorg.2021.102774
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    More about this item

    Keywords

    Horizontal mergers; Innovation; Investments; Competition;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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