Welfare Enhancing Mergers under Product Differentiation

Tina Kao & Flavio Menezes ()
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Tina Kao & Flavio Menezes: School of Economics, The University of Queensland, http://www.uq.edu.au/economics/index.html?page=50288
Authors registered in the RePEc Author Service: Flavio Menezes ()

No 350, Discussion Papers Series from University of Queensland, School of Economics

Abstract: We follow the duopoly framework with differentiated products as in Singh and Vives (1984) and Zanchettin (2006) and examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the merger increases total welfare if the cost asymmetry falls into a specific range. Furthermore, this parameter range widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.

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