Friday, August 3, 2018
Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) and Tetsuya Nakajima (Faculty of Economics, Osaka City University) provide thoughts On the merger paradox and asymmetric product differentiation.
ABSTRACT: Assuming asymmetric product differentiation, we reconsider the merger paradox in the cases of quantity-setting and price-setting games. We investigate whether emergence of the merger paradox depends on the degree of product differentiation of the outsider, irrespective of the mode of competition. In particular, being different from the result of Deneckere and Davidson (1985), we show that the merger paradox arises in the case of price-setting games if the degree of product differentiation of the outsider is sufficiently small.