Can Horizontal Mergers Without Synergies Increase Consumer Welfare? Cournot and Bertrand Competition Under Uncertain Demand

Shieh Shiou (), Huang Chi-Fei () and Chen Hsiao-Chi ()
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Shieh Shiou: Department of Economics, National Taipei University, New Taipei City, Taiwan
Huang Chi-Fei: Department of Economics, National Taipei University, New Taipei City, Taiwan
Chen Hsiao-Chi: Department of Economics, National Taipei University, New Taipei City, Taiwan

The B.E. Journal of Economic Analysis & Policy, 2013, vol. 13, issue 1, 453-484

Abstract: We analyze the welfare effects of horizontal mergers in a model wherein firms produce differentiated products and possess asymmetric information about uncertain market demand. Mergers do not bring about synergies or cost savings, but do allow firms to share their market demand information. We find that under Cournot competition, mergers without synergies could increase expected consumer surplus and social welfare, provided that market volatility is sufficiently large. The parameter spaces in which mergers are beneficial to consumers and society widen when products are more differentiated. In contrast, under Bertrand competition, mergers are always welfare reducing regardless of the degree of market volatility and extent of product differentiation. The driving force for the contrasting results lies in opposing welfare effects of information sharing in the contexts of quantity and price setting.

Keywords: horizontal mergers; welfare analysis; information sharing; demand uncertainty; Cournot and Bertrand competition (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1515/bejeap-2012-0049

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