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Spatial competition and merging incentives when firms produce complements

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  • Borla, Stefania

Abstract

In a model of spatial competition, we show that complementarities can benefit the parties to a merger more than any outsiders thus leading to higher concentration. The driving force is the negative demand externality imposed by the merging firms on the non-merging units in the same locations, which tends to counteract the increase in the composite price (or overall cost of shopping) in the locations with a merger. Since however some of the outsiders are harmed, we also consider how the possibility of a subsequent merger by the initially harmed outsiders may change the incentives for the first integration. Our results show that if the number of firms is sufficiently large, then the initial merger will still be carried through. It follows then that there would be a real need for regulation: market power and market interactions may provide firms with incentives to merge, just like efficiency gains do.

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  • Borla, Stefania, 2012. "Spatial competition and merging incentives when firms produce complements," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 221-229.
  • Handle: RePEc:eee:regeco:v:42:y:2012:i:1:p:221-229
    DOI: 10.1016/j.regsciurbeco.2011.09.002
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    Cited by:

    1. Ralph M. Braid, 2017. "Efficiency-enhancing horizontal mergers in spatial competition," Papers in Regional Science, Wiley Blackwell, vol. 96(4), pages 881-894, November.
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    3. Fan, Ying & Leung, Charles Ka Yui & Yang, Zan, 2021. "Financial Conditions, Local Competition, and Local Market Leaders: The Case of Real Estate Developers," GRU Working Paper Series GRU_2021_007, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    4. Ralph M. Braid, 2016. "Potential merger-forcing entry reduces maximum spacing between firms in spatial competition," Papers in Regional Science, Wiley Blackwell, vol. 95(3), pages 653-669, August.

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    More about this item

    Keywords

    Spatial competition; Complementarities; Merger incentives;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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