Wednesday, September 15, 2021

The Competitive Effects of Mergers with Cournot Competition

The Competitive Effects of Mergers with Cournot Competition

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Hans Zenger

European Union - Directorate General for Competition

Abstract

This paper provides a full characterization of the price effects of horizontal mergers in the Cournot model with heterogeneous firms and constant returns to scale. We show that the price change brought about by a merger only depends on the smaller merging firm's share and the number of firms, but is independent of the distribution of shares among other firms. Price effects are determined by factors that are either directly observable by competition authorities or can be bounded under relatively mild assumptions on demand curvature or pass-through. Estimates based on concentration measures can instead be seriously misleading. We also provide closed-form solutions for calibration that approximate merger effects on the basis of simple pre-merger parameters.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/09/the-competitive-effects-of-mergers-with-cournot-competition.html

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