Spatial price discrimination and the merger paradox (original) (raw)

Horizontal Mergers in Spatially Differentiated Noncooperative Markets

The Journal of Industrial Economics, 1992

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).

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”.

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.

Mixed oligopoly and spatial price discrimination with foreign firms

2009

This paper is the first to examine the welfare consequences of foreign competition in a mixed oligopoly set in a linear model of spatial price discrimination. It demonstrates that the entry of a foreign firm often lowers domestic welfare. This results because the public firm locates largely independently of the presence of the foreign firm and because the profit earned by the foreign firm reduces domestic welfare. Privatization of the public firm typically lowers domestic welfare but can increase global welfare. Thus, domestic governments are unlikely to allow foreign entry and when they do, they are unlikely to privatize the public firm despite the potential rise in global welfare.

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

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

Spatial Price Discrimination with Heterogeneous Firms

The Journal of Industrial Economics, 2011

In this paper we aim to explain intuitively heterogeneous firms’ optimal location decisions in a simple spatial market. To do so, we present and solve a four‐stage game of entry, location, pricing and consumption in a spatial price discrimination framework with arbitrarily many heterogeneous firms. We provide a unique equilibrium outcome without imposing restrictions on the distribution of marginal costs across firms.