Mergers, welfare, and concentration: Results from a model of stackelberg-cournot oligopoly
This paper explores the relationship between mergers, welfare, and concentration, using a two-stage oligopoly model that generalizes the Cournot and Stackelberg models. This model has been used to show that some profitable mergers raise welfare and that some welfare-lowering mergers are unprofitable. Based on this, one might conclude that policy designed to restrict mergers is unnecessary or even counterproductive. This present paper examines in greater detail the implications of this model and finds that a merger's effects depend not only on the reduction in the number of firms, but also on premerger and postmerger firm behavior. In fact, most mergers lower welfare, and many of these are profitable. Usually, but not always, changes in concentration and welfare are negatively related. Copyright International Atlantic Economic Society 2001
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Volume (Year): 29 (2001)
Issue (Month): 4 (December)
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- Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
- Farrell, J. & Shapiro, C., 1988.
"Horizontal Mergers: An Equilibrium Analysis,"
17, Princeton, Woodrow Wilson School - Discussion Paper.
- Farrell, Joseph & Shapiro, Carl, 1988. "Horizontal Mergers: An Equilibrium Analysis," Department of Economics, Working Paper Series qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- Robson, Arthur J, 1990. "Stackelberg and Marshall," American Economic Review, American Economic Association, vol. 80(1), pages 69-82, March.
- Daughety, Andrew F, 1990. "Beneficial Concentration," American Economic Review, American Economic Association, vol. 80(5), pages 1231-37, December.
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