Horizontal Merger Analysis with Endogenous Product Range Choice

Nisvan Erkal and Lijun Pan

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: We consider mergers between multi-product firms in a market with monopolistically competitive fringe of single-product firms. Aggregate product variety is determined by product variety choices of multi-product firms and entry/exit decisions of single-product firms. Mergers can generate marginal cost synergies (affecting marginal cost of quantity) or fixed cost synergies (affecting marginal cost of variety). We show that with marginal cost synergies, consumer welfare decreases whenever aggregate variety increases following a merger. However, with fixed cost synergies, an increase in aggregate variety can indicate that the merger is beneficial. Our results also show high synergies do not necessarily improve consumer welfare.

Date: 2022-02
New Economics Papers: this item is included in nep-com, nep-dcm and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:1162

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