Monday, October 4, 2010
Posted by D. Daniel Sokol
Ray Chaudhuri, A. (Tilburg University, Center for Economic Research) discusses Monopolization Through Acquisitions in Multimarket Oligopolies.
ABSTRACT: This paper shows that, under Cournot competition, monopolization through acquisitions is more likely to occur in industries where firms serve multiple segmented markets rather than a single integrated market, given that cost functions are strictly convex. Under segmented markets, within a two-country model, the paper shows that if a multinational firm acquires a local …rm in one of the markets, the product price in that market rises but the product price in the other falls. This decreases the profit that each local firm would obtain if it unilaterally remained outside a merger to monopoly, making it cheaper to acquire. This reverses the well established result in the existing merger literature, which focuses on the case where an industry serves a single integrated market. Moreover, the paper shows that the sum of consumer surplus across the countries may rise in response to an acquisition despite the absence of any synergies, which existing literature shows is not possible in a single integrated market.