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The Rationale for Using the Classic Cournot Mechanism in Merger Control

In: Competition Authorities in South Eastern Europe

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  • Bojan Ristić

    (University of Belgrade)

Abstract

The aim of this paper is to theoretically establish the application of Cournot’s model of competition as the reduced form of two-stage competition in oligopoly markets, in the circumstances with limited capacities. In this manner, a valuable tool is provided to the competition protection authority for analysing the unilateral effects of the horizontal mergers. The outcome of the two-stage competition, where firms chose to have a certain level of capacity, before the price competition, coincides with the outcome of the Cournot quantity competition model. Moreover, it turns out that this result is valid both for the homogeneous products markets and for the markets with differentiated products. This contradicts a standard attitude that quantity is a strategic variable exclusively within the homogeneous product markets. While controlling horizontal mergers, the competition authority often relies on traditional analysis elements, which start with the definition of the relevant market and market shares, and the concentration measures based on that definition. Analyses of this kind are carried out almost in a standard manner, for both markets with homogeneous and differentiated products. It is easy to verify that every analysis of this type encompasses the mentioned model of quantity competition in its foundation. Therefore, the discussion that is presented attempts to eliminate doubts related to the role of the Cournot model in merger control policy.

Suggested Citation

  • Bojan Ristić, 2018. "The Rationale for Using the Classic Cournot Mechanism in Merger Control," Contributions to Economics, in: Boris Begović & Dušan V. Popović (ed.), Competition Authorities in South Eastern Europe, pages 189-208, Springer.
    • Handle: RePEc:spr:conchp:978-3-319-76644-7_11
    DOI: 10.1007/978-3-319-76644-7_11
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