Horizontal Mergers in Spatially Differentiated Noncooperative Markets (original) (raw)

Spatial price discrimination and the merger paradox

Regional Science and Urban Economics, 2000

A familiar result in the literature on mergers is that the principal beneficiaries from such activity are the firms which are excluded from participation. The possible existence of this 'merger paradox' contrasts strongly with the frequently expressed view that merger is anti-competitive. This paper examines the question within the context of a model of spatial competition in which firms choose their locations in anticipation of forming a merger, and practise price-discrimination. We allow for differences in firms' shares in the benefits of merger, and for the possibility that the firms will attach probabilities to merger formation.

Mergers in a Cournot Model of Spatial Competition: Urban Sprawl and Product Specialization

1998

This paper investigates the profitability and locational effects of mergers when firms play a Cournot game and compete in spatially differentiated markets. A two-firm merger is generally profitable in these types of markets because the merged partners can coordinate their location decisions. The merged firm locates its plants outside the market quartiles with distance from the market center being an

Anticompetitive Effects of Mergers in Markets with Localized Competition

The Journal of Law, Economics, and Organization

Bureau of Economics working papers are preliminary materials circulated to stimulate discussion and critical comment All data cootained in them are in the public domain. This includes information obtained by the Commission which has become part of public record. The analyses and conclusions set forth are those of the anthors and do not necessarily reflect the views of other members of the Bureau of Economics, other Commission staff, or the Commissiou itself. Upon request, single copies of the paper will be provided. References in publications to FfC Bureau of Economics working papers by FfC economists (other than acknowledgement by a writer that he has access to such unpublished materials) should be cleared with the author to protect the tentative character of these papers.

Delivered Pricing and Merger with Demand Constraints

Economic Inquiry, 2004

The consequences of a demand constraint (low willingness to pay) are examined in a model of merger by spatial price discriminators. The imposition of a demand constraint reduces the extent of inefficiency associated with merger and also eliminates the resolution of the merger paradox obtained in the earlier, unconstrained case. Moreover, with the introduction of a demand constraint, a tax on transport cost can actually improve efficiency, which is never the case in the absence of the demand constraint. Indeed, the optimal tax often eliminates all spatial price competition by creating local monopolies. (JEL D43, L41) *Affiliations of the authors are respectively Department

Mergers in Imperfectly Segmented Markets

SSRN Electronic Journal, 2000

We present a model with …rms selling (homogeneous) products in two imperfectly segmented markets (a "high-demand" and a "low-demand" market). Buyers are mobile but restricted by transportation costs, so that imperfect arbitrage occurs when prices di¤er in both markets. We show that equilibria are distorted away from Cournot outcomes to prevent consumer arbitrage. Furthermore, a merger can lead to an equilibrium in which only the "high-demand" market is served. This is more likely (i) the lower consumers'transportation costs and (ii) the higher the concentration of the industry. Therefore, merger incentives are much larger than standard analysis suggests.

Merger, Partial Collusion and Relocation

Journal of Economics, 2004

We set up a three-firm model of spatial competition to analyse how a merger affects the incentives for relocation, and conversely, how the possibility of relocation affects the profitability of the merger, particularly for the non-participating firm. We also consider the cases of partial collusion in either prices or locations. Under the assumption of mill pricing, we find that a merger will generally induce the merger participants to relocate, but the direction of relocation is ambiguous, and dependent on the degree of convexity in the consumers’ transportation cost function. Furthermore, we identify a set of parameter values for which the free-rider effect of a merger vanishes, implying that the possibility of relocation could solve the “merger paradox”.

Endogenous Mergers in Vertically Differentiated Markets

2015

This paper studies the incentives for …rms competing in vertically di¤erentiated markets to sign binding collusive agreements, as in the case of mergers and alliances. Empirical investigations show that …rms involved in mergers and acquisitions revise prices and qualities as to maximize their joint pro…ts. In a few cases merging …rms are also observed shutting down some lines of activities (so called market pruning). In this paper we attempt to test these predictions by modelling a three-stage game in which, at the …rst stage, three …rms selling goods independently in a vertically di¤erentiated market can commit to sign either a full or a partial voluntary agreement (with a subset of …rms) via a sequential game of coalition formation while, at the second and third stage they can optimally revise their qualities and prices, respectively. In such a setting we study whether some binding agreements (as full or partial mergers) can be sustained as subgame perfect equilibria of the coalition formation game. Moreover, we analyse the …nal e¤ects of di¤erent coalition structures on equilibrium qualities, prices and pro…ts accruing to …rms. We obtain the following results: (i) initial …rms' heterogeneity appears a crucial factor for mergers to arise; (ii) although pro…table, the grand coalition of …rms (i.e. the whole market merger) is not the outcome of the …nite-horizon negotiation, where only partial mergers arise; (iii) all stable mergers comprehends the …rm producing the bottom quality good; (iv) all stable mergers reduce the number of variants on sale (market pruning); (v) stable mergers always increase the quality gap among variants. All model …ndings seem compatible with the existing empirical observations.

Price Effects of Horizontal Mergers

California Law Review, 1989

When should the government challenge a merger that might increase market power but also generate efficiency gains? The dominant belief has been that the government and courts should evaluate these mergers solely in terms of economic efficiency. Congress, however, wanted the courts to stop any merger significantly likely to raise prices. Substantially likely efficiency gains should therefore affect the legality of mergers to the extent that they are likely to prevent price increases. This standard is more strict than the economic efficiency criterion, because the latter would permit mergers substantially likely to lead to higher prices, if sufficient efficiency gains were substantially likely. The authors analyze the competing price effects of market power increases and efficiency gains in the most relevant context: significant mergers in concentrated markets-oligopoly. They derive four general oligopoly models and evaluate them over all reasonable ranges for their underlying parameters. This methodology avoids biases due to overly restrictive assumptions.