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

A merger of two Cournot firms, who produce spatially differentiated products and engage in spatial price discrimination, creates a firm that is in some sense larger than its rivals. Nevertheless, we show that the merged firm is unable to translate this larger size into profit-increasing behavior unless the difference in the costs of the merging firms at the affected consumer locations is "sufficiently great". A simulation experiment shows that the joint profits of the merging firms is positively related to the difference in their pre-merger marginal costs and to transport costs and is negatively related to the number of firms that are active at the affected consumer locations prior to the merger. While such mergers always increase consumer prices, our experiments indicate that profitable mergers (which might occur) can be expected to increase prices by less than unprofitable mergers (which should not occur).