Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Thursday, October 29, 2009

Endogenous Mergers Under Multi-Market Competition

Posted by D. Daniel Sokol

Tina Kao and (ANU - Econ) Flavio Menezes (Queensland - Econ) analyze Endogenous Mergers Under Multi-Market Competition.

ABSTRACT: This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increasing producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutabilit! y between goods 1 and 2.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/10/endogenous-mergers-under-multimarket-competition.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0120a672b4fe970c

Listed below are links to weblogs that reference Endogenous Mergers Under Multi-Market Competition:

Comments

Post a comment