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The Effect of Horizontal Mergers, when Firms Compete in Prices and Investments

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  • Massimo Motta
  • Emanuele Tarantino

Abstract

It has been suggested that mergers, by increasing concentration, raise incentives to invest and hence are pro-competitive. To study the effects of mergers, we rewrite a game with simultaneous price and cost-reducing investment choices as one where firms only choose prices, and make use of aggregative game theory. We find no support for that claim: absent efficiency gains, the merger lowers total investments and consumer surplus. Only if it entails sufficient efficiency gains, will it be pro-competitive. We also show there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.

Suggested Citation

  • Massimo Motta & Emanuele Tarantino, 2017. "The Effect of Horizontal Mergers, when Firms Compete in Prices and Investments," Working Papers 987, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:987
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Vincenzo Denicolò & Michele Polo, 2018. "The innovation theory of harm: an appraisal," IEFE Working Papers 103, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    2. Johnson, Justin Pappas & Rhodes, Andrew, 2018. "Multiproduct Mergers and Quality Competition," TSE Working Papers 18-967, Toulouse School of Economics (TSE).
    3. repec:eee:indorg:v:63:y:2019:i:c:p:283-325 is not listed on IDEAS
    4. Nocke, Volker & Schutz, Nicolas, 2018. "An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly," CEPR Discussion Papers 12905, C.E.P.R. Discussion Papers.
    5. Michele Bisceglia & Salvatore Piccolo & Emanuele Tarantino, 2018. "M&A Advisory and the Merger Review Process," CSEF Working Papers 515, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    6. Bourreau, Marc & Jullien, Bruno & Lefouili, Yassine, 2018. "Mergers and Demand-Enhancing Innovation," TSE Working Papers 18-907, Toulouse School of Economics (TSE), revised Jul 2018.
    7. Giulio Federico & Fiona Scott Morton & Carl Shapiro, 2019. "Antitrust and Innovation: Welcoming and Protecting Disruption," NBER Chapters,in: Innovation Policy and the Economy, Volume 20 National Bureau of Economic Research, Inc.
    8. Wolfgang Kerber, 2017. "Rights on Data: Competition, Innovation, and Competition Law: Dissecting the Interplay," MAGKS Papers on Economics 201742, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. Jeanjean, François, 2018. "Impact of Technical Progress on the relationship between Competition and Investment," 29th European Regional ITS Conference, Trento 2018 184948, International Telecommunications Society (ITS).
    10. Jullien, Bruno & Lefouili, Yassine, 2018. "Mergers and Investments in New Products," TSE Working Papers 18-949, Toulouse School of Economics (TSE).
    11. Hollenbeck, Brett, 2018. "Horizontal Mergers and Innovation in Concentrated Industries," MPRA Paper 90764, University Library of Munich, Germany.
    12. repec:eee:indorg:v:59:y:2018:i:c:p:1-23 is not listed on IDEAS
    13. Haucap, Justus & Rasch, Alexander & Stiebale, Joel, 2019. "How mergers affect innovation: Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 283-325.
    14. Jullien, Bruno & Lefouili, Yassine, 2018. "Horizontal Mergers and Innovation," TSE Working Papers 18-892, Toulouse School of Economics (TSE), revised May 2018.
    15. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.

    More about this item

    Keywords

    Horizontal mergers; innovation; investments; network-sharing agreements; competition;

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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

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