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An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly

Author

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  • Volker Nocke
  • Nicolas Schutz

Abstract

Using an aggregative games approach, we analyze horizontal mergers in a model of multiproduct-firm price competition with nested CES or nested logit demands. We show that the Herfindahl index provides an adequate measure of the welfare distortions introduced by market power, and that the induced change in the naively-computed Herfindahl index is a good approximation for the market power effect of a merger. We also provide conditions under which a merger raises consumer surplus, and conditions under which a myopic, consumer-surplus-based merger approval policy is dynamically optimal. Finally, we study the aggregate surplus and external effects of a merger.

Suggested Citation

  • Volker Nocke & Nicolas Schutz, 2018. "An Aggregative Games Approach to Merger Analysis in Multiproduct-Firm Oligopoly," NBER Working Papers 24578, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:24578
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    References listed on IDEAS

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    1. Zhao, Jingang, 2001. "A characterization for the negative welfare effects of cost reduction in Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 455-469, March.
    2. Nocke, Volker & Schutz, Nicolas, 2016. "Multiproduct-Firm Oligopoly: An Aggregative Games Approach," CEPR Discussion Papers 11539, C.E.P.R. Discussion Papers.
    3. Marie Goppelsroeder & Maarten Pieter Schinkel & Jan Tuinstra, 2008. "Quantifying The Scope For Efficiency Defense In Merger Control: The Werden‐Froeb‐Index," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 778-808, December.
    4. repec:eee:gamebe:v:111:y:2018:i:c:p:250-273 is not listed on IDEAS
    5. Werden, Gregory J, 1996. "A Robust Test for Consumer Welfare Enhancing Mergers among Sellers of Differentiated Products," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 409-413, December.
    6. Basile Grassi, 2018. "IO in I-O: Size, Industrial Organization, and the Input-Output NetworkMake a Firm Structurally Important," Working Papers 619, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Massimo Motta & Emanuele Tarantino, 2017. "The effect of horizontal mergers, when firms compete in prices and investments," Economics Working Papers 1579, Department of Economics and Business, Universitat Pompeu Fabra.
    8. Colin J. Hottman & Stephen J. Redding & David E. Weinstein, 2016. "Quantifying the Sources of Firm Heterogeneity," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1291-1364.
    9. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2018. "Horizontal mergers and product innovation," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 1-23.
    10. Sonia Jaffe & E. Glen Weyl, 2013. "The First-Order Approach to Merger Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 188-218, November.
    11. Gautam Gowrisankaran, 1999. "A Dynamic Model of Endogenous Horizonal Mergers," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 56-83, Spring.
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    Cited by:

    1. Spiegel, Yossi, 2019. "The Herfindahl-Hirschman Index and the distribution of social surplus," CEPR Discussion Papers 13925, C.E.P.R. Discussion Papers.
    2. Johnson, Justin Pappas & Rhodes, Andrew, 2018. "Multiproduct Mergers and Quality Competition," TSE Working Papers 18-967, Toulouse School of Economics (TSE).

    More about this item

    JEL classification:

    • 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
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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