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Merger, Partial Collusion and Relocation

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  • Pedro Posada

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  • Odd Rune Straume

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Abstract

We set up a three-firm model of spatial competition to analyse how a merger affects the incentives for relocation, and conversely, how the possibility of relocation affects the profitability of the merger, particularly for the non-participating firm. We also consider the cases of partial collusion in either prices or locations. Under the assumption of mill pricing, we find that a merger will generally induce the merger participants to relocate, but the direction of relocation is ambiguous, and dependent on the degree of convexity in the consumers’ transportation cost function. Furthermore, we identify a set of parameter values for which the free-rider effect of a merger vanishes, implying that the possibility of relocation could solve the “merger paradox”. Copyright Springer-Verlag Wien 2004

Suggested Citation

  • Pedro Posada & Odd Rune Straume, 2004. "Merger, Partial Collusion and Relocation," Journal of Economics, Springer, vol. 83(3), pages 243-265, December.
  • Handle: RePEc:kap:jeczfn:v:83:y:2004:i:3:p:243-265 DOI: 10.1007/s00712-004-0091-9
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    Cited by:

    1. Stefano Colombo, 2016. "Mixed oligopolies and collusion," Journal of Economics, Springer, pages 167-184.
    2. Alain Egli, 2005. "On Stability in Competition: Tying and Horizontal Product Differentiation," Diskussionsschriften dp0501, Universitaet Bern, Departement Volkswirtschaft.
    3. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, pages 22-32.
    4. John Heywood & Guangliang Ye, 2013. "Sequential entry and merger in spatial price discrimination," The Annals of Regional Science, Springer;Western Regional Science Association, pages 841-859.
    5. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, "undated". "Horizontal Mergers and Product Quality," NIPE Working Papers 07/2014, NIPE - Universidade do Minho.
    6. Rasch, Alexander & Wambach, Achim, 2009. "Internal decision-making rules and collusion," Journal of Economic Behavior & Organization, Elsevier, pages 703-715.
    7. Egger, Hartmut & Egger, Peter, 2010. "The trade and welfare effects of mergers in space," Regional Science and Urban Economics, Elsevier, pages 210-220.
    8. Cosnita-Langlais, Andreea, 2012. "Horizontal market concentration: Theoretical insights from spatial models," Research in Economics, Elsevier, pages 22-32.
    9. Stefano Colombo, 2011. "Pricing Policy and Partial Collusion," Journal of Industry, Competition and Trade, Springer, vol. 11(4), pages 325-349, December.
    10. Alexander Rasch, 2012. "A note on mergers and relocation," Journal of Economics, Springer, vol. 107(3), pages 277-282, November.

    More about this item

    Keywords

    spatial competition; merger; relocation; partial collusion; L13; L41; R30;

    JEL classification:

    • 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
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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