Mergers with Quality Differentiated Products
We consider the impact of merger on the equilibrium price and quality of products. Consumer demand for both products depends not only on own price and quality, but also on the price and quality of the other product. We consider both the case in which the merging firms produce gross complements, and the case in which the firms produce gross substitutes. In both cases, merger may lower or increase both product price and quality. In the case in which firms produce complementary products, it may happen that firms both lower price and increase product quality when merged. This happens when the cross quality elasticities of demand and the cross price elasticities of demand are equal in magnitude. Surprisingly, we also find that there are situations under which merger between firms producing substitutes increases welfare. For example, it is possible that merger between firms producing gross complements may result in higher product quality but lower social welfare, and merger between firms producing substitute products may result in lower product quality but higher social welfare.
|Date of creation:||Oct 2003|
|Contact details of provider:|| Postal: 589 McNair Road, Annapolis, MD 21402-5030|
Phone: (410) 293-6800
Fax: (410) 293-6899
Web page: http://www.usna.edu/EconDept/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmalensee, Richard, 1987. "Horizontal Merger Policy: Problems and Changes," Journal of Economic Perspectives, American Economic Association, vol. 1(2), pages 41-54, Fall.
- Farrell, J. & Shapiro, C., 1988.
"Horizontal Mergers: An Equilibrium Analysis,"
17, Princeton, Woodrow Wilson School - Discussion Paper.
- Joseph Farrell and Carl Shapiro., 1988. "Horizontal Mergers: An Equilibrium Analysis," Economics Working Papers 8880, University of California at Berkeley.
- 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.
- Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995.
"The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
- Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-137, May.
- Luis M. B. Cabral, 2001.
"Horizontal Mergers With Free-Entry: Why Cost Efficiencies May Be a Weak Defense and Asset Sales a Poor Remedy,"
01-05, New York University, Leonard N. Stern School of Business, Department of Economics.
- Cabral, Luis M. B., 2003. "Horizontal mergers with free-entry: why cost efficiencies may be a weak defense and asset sales a poor remedy," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 607-623, May.
- A. Dixit, 1977.
"Quality and Quantity Competition,"
198, Massachusetts Institute of Technology (MIT), Department of Economics.
- Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-123, March.
- Martin Pesendorfer, 1998.
"Horizontal Mergers in the Paper Industry,"
NBER Working Papers
6751, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:usn:usnawp:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.