On the social welfare effects of runner-up mergers in concentrated markets

Dragan Jovanovic, Christian Wey and Mengxi Zhang

No 371, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: This paper argues that it cannot be taken for granted that any merger that raises consumer surplus also increases social welfare. We assume a Cournot model with homogeneous goods, linear demand, and constant marginal costs, to show that a merger can raise consumer surplus while harming social welfare. Within this framework, we show that such an outcome depends on two conditions: the merger is between small firms (i.e., relatively inefficient firms) and it reduces concentration; that is, a constellation which can be characterized as a "runner-up" merger.

Keywords: Runner-up Mergers; Efficiencies; Oligopoly; welfare (search for similar items in EconPapers)
JEL-codes: K21 L13 L41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com, nep-ind, nep-law, nep-mic and nep-reg
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Journal Article: On the social welfare effects of runner-up mergers in concentrated markets (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:371

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