Competitive effects of horizontal mergers with asymmetric firms

Cuong Vuong () and Edmond Baranes ()
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Cuong Vuong: MRE and LabEx Entreprendre, University of Montpellier
Edmond Baranes: MRE and LabEx Entreprendre, University of Montpellier

Economics Bulletin, 2021, vol. 41, issue 2, 734-740

Abstract: This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.

Keywords: Horizontal merger; Cost-reducing; Innovation; Competition; Investment (search for similar items in EconPapers)
JEL-codes: L4 L5 (search for similar items in EconPapers)
Date: 2021-04-09
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Citations: View citations in EconPapers (2)

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