The Effect of Market Structure and Conduct on the Incentive for a Horizontal Merger

In this paper, we examine how market structure and firms¡¯ conduct affect the private incentive and welfare effect of a merger. The main result of this paper is as follows. First, as market becomes more concentrated, the increase in the joint profit of merging firms becomes lower for the case of the same cost savings by a merger. This implies that as market concentration increases, it is necessary for a merger to attain larger cost reduction in order to be profitable. Second, the increase in welfare by a merger rises (or, the decrease in welfare by a merger falls) as the market structure goes toward competition. Third, As the collusion level among firms becomes higher, the increase in the joint profit of merging firms goes down. Fourth, As the collusion among firms decreases, the required level of cost savings for a merger to raise welfare also goes down. Fifth, a merger can induce a stable cartel which was not formed before merger.