Tuesday, April 3, 2018

The effect of horizontal mergers, when firms compete in prices and investments

Motta, Massimo and Tarantino, Emanuele analyze The effect of horizontal mergers, when firms compete in prices and investments.

ABSTRACT: It has been suggested that mergers, by increasing concentration, raise incentives to invest and hence are pro-competitive. To study the effects of mergers, we rewrite a game with simultaneous price and cost-reducing investment choices as one where firms only choose prices, and make use of aggregative game theory. We find no support for that claim: absent effciency gains, the merger lowers total investments and consumer surplus.Only if it entails suffcient effciency gains, will it be pro-competitive. We also show there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.

https://lawprofessors.typepad.com/antitrustprof_blog/2018/04/the-effect-of-horizontal-mergers-when-firms-compete-in-prices-and-investments.html

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