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Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium

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  • Stephen W. Salant
  • Sheldon Switzer
  • Robert J. Reynolds

Abstract

The consequences of a horizontal merger are typically studied by treating the merger as an exogenous change in market structure that displaces the initial Cournot equilibrium. In the new equilibrium the merged firm is assumed to behave like a multiplant Cournot player engaged in a noncooperative game against other sellers. The purpose of this article is to evaluate an unnoticed comparative-static implication of this approach: some exogenous mergers may reduce the endogenous joint profits of the firms that are assumed to collude. Cournot's original example is used to illustrate this and other bizarre results that can occur in the Cournot framework if the market structure is treated as exogenous.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:qjecon:v:98:y:1983:i:2:p:185-199.
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    1. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "General Equilibrium Analysis of Tax Policies," NBER Chapters,in: A General Equilibrium Model for Tax Policy Evaluation, pages 6-24 National Bureau of Economic Research, Inc.
    2. Martin Feldstein, 1974. "Incidence of a Capital Income Tax in a Growing Economy with Variable Savings Rates," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 505-513.
    3. Shoven, John B. & Whalley, John, 1972. "A general equilibrium calculation of the effects of differential taxation of income from capital in the U.S," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 281-321, November.
    4. Boskin, Michael J, 1978. "Taxation, Saving, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 3-27, April.
    5. Michael J. Boskin, 1978. "Taxation, Saving, and the Rate of Interest," NBER Chapters,in: Research in Taxation, pages 3-27 National Bureau of Economic Research, Inc.
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