Thursday, August 20, 2015

Losses from Horizontal Merger: An Extension to a Successive Oligopoly Model with Product Differentiation

Ramon Fauli‐Oller, Universidad de Alicante and Borja Mesa‐Sanchez, Universidad Carlos III de Madrid discuss Losses from Horizontal Merger: An Extension to a Successive Oligopoly Model with Product Differentiation.

ABSTRACT: This paper generalizes the model of Salant et al. (1983; Quarterly Journal of Economics, Vol. 98, pp. 185–199) to a successive oligopoly model with product differentiation. Upstream firms produce differentiated goods, retailers compete in quantities, and supply contracts are linear. We show that if retailers buy from all producers, downstream mergers do not affect wholesale prices. Our result replicates that of Salant's, where mergers are not profitable unless the size of the merged firm exceeds 80 per cent of the industry. This result is robust to the type of competition.

https://lawprofessors.typepad.com/antitrustprof_blog/2015/08/losses-from-horizontal-merger-an-extension-to-a-successive-oligopoly-model-with-product-differentiat.html

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