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Welfare Enhancing Mergers Under Product Differentiation

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  • Tina Kao
  • Flavio Menezes

Abstract

This paper considers a model of duopoly with differentiated products to examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the parameter range for welfare enhancing merger widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.

Suggested Citation

  • Tina Kao & Flavio Menezes, 2009. "Welfare Enhancing Mergers Under Product Differentiation," ANU Working Papers in Economics and Econometrics 2009-508, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2009-508
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp508.pdf
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    References listed on IDEAS

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    1. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, September.
    2. 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.
    3. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    4. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    5. David Hennessy, 2000. "Cournot Oligopoly Conditions under which Any Horizontal Merger Is Profitable," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(3), pages 277-284, November.
    6. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    7. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
    8. Piercarlo Zanchettin, 2006. "Differentiated Duopoly with Asymmetric Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(4), pages 999-1015, December.
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    Cited by:

    1. Luis Gautier & Mahelet G. Fikru, 2024. "Mergers in Cournot Markets with Environmental Externality and Product Differentiation," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 21-46, Springer.
    2. Choi, Pak-Sing & Espínola-Arredondo, Ana & Muñoz-García, Félix, 2022. "Environmental policy helping antitrust decisions: Socially excessive and insufficient merger approvals," Resource and Energy Economics, Elsevier, vol. 67(C).
    3. Fikru, Mahelet G., 2016. "Modelling mergers among polluting firms when environmental policy is endogenous," Economic Analysis and Policy, Elsevier, vol. 49(C), pages 1-6.
    4. Luis Gautier & Mahelet G. Fikru, 2024. "The Design of Emission Taxes in Markets with New Firm Acquisitions," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 225-243, Springer.
    5. Choi, Pak-Sing & Espinola-Arredondo, Ana & Munoz, Felix, 2020. "Mergers as an environmental ally: Socially excessive and insufficient merger approvals," Working Papers 2020-1, School of Economic Sciences, Washington State University.
    6. Apostolis Pavlou, 2015. "Learning by doing and horizontal mergers," Journal of Economics, Springer, vol. 116(1), pages 25-38, September.
    7. Nisvan Erkal & Daniel Piccinin, 2010. "Welfare‐Reducing Mergers in Differentiated Oligopolies with Free Entry," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 178-184, June.
    8. Luis Gautier & Mahelet G. Fikru, 2024. "Welfare Impact of New Firm Acquisition," Natural Resource Management and Policy, in: Handbook of Merger Control and Environmental Policy, chapter 0, pages 105-132, Springer.
    9. Jiyun Cao & Arijit Mukherjee & Uday Bhanu Sinha, 2020. "The implications of labour unions in the presence of a merger," Manchester School, University of Manchester, vol. 88(4), pages 575-583, July.
    10. Ana Espínola-Arredondo & Felix Munoz-Garcia & Ae Rin Jung, 2020. "Organic Mergers and Acquisitions," Journal of Industry, Competition and Trade, Springer, vol. 20(1), pages 59-91, March.
    11. Pu†yan Nie, 2018. "Comparing Horizontal Mergers Under Cournot with Bertrand Competitions," Australian Economic Papers, Wiley Blackwell, vol. 57(1), pages 55-80, March.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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