Horizontal Mergers in the Presence of Capacity Constraints

Zhiqi Chen and Gang Li ()
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Gang Li: School of Economics, Nanjing University

No 14-11, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: We analyze the effects of a merger between two competitors in a Bertrand-Edgeworth model. The merger has no effect on equilibrium prices if a pure strategy equilibrium prevails both before and after the merger. Otherwise, the merger leads to higher prices. In the case where a mixed strategy equilibrium prevails before and after the merger, for example, the support of the price distributions shifts rightward after the merger and the post-merger price distribution of each firm stochastically dominates its pre-merger counterpart. The pre-merger capacity level of each firm plays a crucial role in determining the effects of the merger.

Keywords: Merger; capacity constraints; Bertrand-Edgeworth model (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-09
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
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Published: Carleton Economic Papers

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Related works:
Journal Article: HORIZONTAL MERGERS IN THE PRESENCE OF CAPACITY CONSTRAINTS (2018)
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