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Mergers, investments and demand expansion

Author

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  • Bourreau, Marc
  • Jullien, Bruno

Abstract

In this paper, we study the impact of a merger to monopoly on prices and investments. Two single-product firms compete in prices and coverage for a new technology. In equilibrium, one firm covers a larger territory than its competitor with the new technology, leading to singleproduct and multi-product zones, and sets a higher uniform price. If the firms merge, the merged entity can set different prices and coverage for the two products. We find that the merger raises prices and total coverage, but reduces the coverage of the multi-product zone. We also show that the merger can increase total welfare and consumer welfare.

Suggested Citation

  • Bourreau, Marc & Jullien, Bruno, 2017. "Mergers, investments and demand expansion," TSE Working Papers 17-880, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:32350
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    References listed on IDEAS

    as
    1. Axel Gautier & Xavier Wauthy, 2010. "Price competition under universal service obligations," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 311-326, September.
    2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    3. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
    4. Christos Genakos & Tommaso Valletti & Frank Verboven, 2018. "Evaluating market consolidation in mobile communications," Economic Policy, CEPR;CES;MSH, vol. 33(93), pages 45-100.
    5. repec:eee:ecolet:v:157:y:2017:i:c:p:136-140 is not listed on IDEAS
    6. Carl Davidson & Ben Ferrett, 2007. "Mergers in Multidimensional Competition," Economica, London School of Economics and Political Science, vol. 74(296), pages 695-712, November.
    7. Steffen Hoernig, 2006. "Should uniform pricing constraints be imposed on entrants?," Journal of Regulatory Economics, Springer, vol. 30(2), pages 199-216, August.
    8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, March.
    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. 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.
    11. Federico, Giulio & Langus, Gregor & Valletti, Tommaso, 2017. "A simple model of mergers and innovation," Economics Letters, Elsevier, vol. 157(C), pages 136-140.
    12. Valletti, Tommaso M & Hoernig, Steffen & Barros, Pedro P, 2002. "Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints," Journal of Regulatory Economics, Springer, vol. 21(2), pages 169-190, March.
    13. Richard Gilbert, 2006. "Looking for Mr. Schumpeter: Where Are We in the Competition-Innovation Debate?," NBER Chapters,in: Innovation Policy and the Economy, Volume 6, pages 159-215 National Bureau of Economic Research, Inc.
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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. 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.
    3. 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.

    More about this item

    Keywords

    horizontal mergers; investments; competition;

    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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