Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus

Charles Thomas

Working Papers from Chapman University, Economic Science Institute

Abstract: In a simple model I show consumer surplus can increase after competing sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with the conventional wisdom that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their product’s fit with the buyer’s preferences. Mergers benefit buyers by inducing stronger contest-level entry, echoing common claims from merging parties that their merger is beneficial because it creates a stronger competitor.

Keywords: mergers; efficiencies; consumer surplus; antitrust (search for similar items in EconPapers)
JEL-codes: D4 D44 L1 L4 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.chapman.edu/research-and-institutions/e ... rgerentry2e-2017.pdf

Related works:
Journal Article: Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:17-07

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