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Efficiency-Enhancing Horizontal Mergers in Spatial Competition with Network Externalities

Author

Listed:
  • Lei Bao

    (School of Economics and Management, Huaiyin Normal University, Huai’an 223001, China)

  • Wenshi Yu

    (School of Economics, Shandong University, Jinan 250100, China)

Abstract

We study horizontal mergers in a network products market with a three-firm model of spatial competition, where two merged firms become compatible at the expense of product differentiation. We consider two different approaches to modeling rational expectations: responsive and passive. The results show that the merger may reduce industry competition, since the merger-related compatibility enlarges the network scales for insiders and amplifies product differentiation between the insiders and the outsider; therefore, the proposed merger may benefit all firms, raise consumer surplus, and enhance social welfare, i.e., the merger is Pareto-improving.

Suggested Citation

  • Lei Bao & Wenshi Yu, 2022. "Efficiency-Enhancing Horizontal Mergers in Spatial Competition with Network Externalities," Mathematics, MDPI, vol. 10(18), pages 1-13, September.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:18:p:3266-:d:910144
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    References listed on IDEAS

    as
    1. Davidson, Carl & Mukherjee, Arijit, 2007. "Horizontal mergers with free entry," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 157-172, February.
    2. 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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    6. Andreea Cosnita‐Langlais & Alexander Rasch, 2023. "Horizontal mergers, cost savings, and network effects," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 65-82, January.
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    Cited by:

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