Tuesday, July 24, 2018
Do Merger Efficiencies Always Mitigate Price Increases?
Zhiqi Chen, Carleton University - Department of Economics and Gang Li, Nanjing University - Department of Economics ask Do Merger Efficiencies Always Mitigate Price Increases?
ABSTRACT: In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post‐merger prices under certain conditions. Specifically, when the degree of substitutability between the two insiders is not too high relative to that between an insider and an outsider, increased efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that efficiencies will necessarily mitigate the anticompetitive effects of the merger.