Merger Paradox in a Network Product Market: A Horizontally Differentiated Three-Firm Model

Tsuyoshi Toshimitsu

No 167, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: Using a horizontally differentiated three-firm model, we reconsider the merger paradox and externalities, i.e., the profitability of a merger, in a network product market where network externalities and compatibilities between products exists. Investigating the effect of a merger on the profits of the insider (participant) and outsider (nonparticipant) firms, we demonstrate the conditions under which the merger paradox and externalities arise in the network product market. If the degree of the merger-related network compatibility is sufficiently large, the merger paradox never arises.

Keywords: merger paradox; network externality; compatibility; horizontal product differentiation; quantity-setting game (search for similar items in EconPapers)
JEL-codes: D43 K21 L13 L14 L15 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-09, Revised 2017-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-law, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:167

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