Endogenous Horizontal Mergers in Homogeneous Goods Industries with Bertrand Competition

Elpiniki Bakaouka (), Marc Escrihuela-Villar () and Walter Ferrarese ()
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Elpiniki Bakaouka: Universitat de les Illes Balears, Postal: Edifici Jovellanos, Crta Valldemossa, km 7,5 07122 Palma de Mallorca (Spain)
Marc Escrihuela-Villar: Universitat de les Illes Balears, Postal: Edifici Jovellanos, Crta Valldemossa, km 7,5 07122 Palma de Mallorca (Spain)
Walter Ferrarese: Universitat de les Illes Balears, Postal: Edifici Jovellanos, Crta Valldemossa, km 7,5 07122 Palma de Mallorca (Spain)

No 96, DEA Working Papers from Universitat de les Illes Balears, Departament d'Economía Aplicada

Abstract: We discuss the effect of horizontal mergers in homogeneous goods industries when firms compete à la Bertrand with increasing marginal costs of production. We set up a two-stage game where in the first stage firms decide whether to join the merger or to remain outside and in the second stage market competition takes place. We identify necessary and sufficient conditions for a market structure where a merger did occur to be coalition proof. We find that such market structure could be consumer surplus enhancing as it could arise even for lower post-merger prices with respect to the pre-merger scenario. This is in sharp contrast with the findings under both price and quantity competition where, absent efficiency gains, mergers unambiguously harm consumers.

Keywords: Homogeneous Goods; Horizontal Mergers; Bertrand Competition; Coalition Proof Nash Equilibrium. (search for similar items in EconPapers)
JEL-codes: C72 D43 G34 L13 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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:ubi:deawps:96

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