Merges in Congested Markets

Jonas Häckner () and Carlos Razo ()
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Carlos Razo: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden, http://www.ne.su.se/

No 2004:8, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: This paper analyses the effects of mergers on price and welfare in markets facing congestion and derives conditions under which a merger is consumer welfare improving, even in the absence of marginal cost savings. In our context a merger basically has two effects. First, it obviously increases market concentration. Second, it makes the new entity a more aggressive competitor. The paper shows that mergers that entail a more efficient use of installed capacity can result in important price reductions. Moreover, even when the post-merger price of the new merged entity increases, the outsiders may respond by decreasing prices and the overall effect may be a consumer welfare gain. Thus, the current merger policy may be inappropriate in these types of markets. From a policy perspective it could thus be argued that the competition authorities should demand less in terms of “standard” merger-efficiencies in order to approve the merger in a congested market, and especially when there are synergies in terms of capacity utilization.

Keywords: mergers; congestion; capacity utilization (search for similar items in EconPapers)
JEL-codes: K21 L40 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2004-08-20
New Economics Papers: this item is included in nep-com, nep-ind and nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sunrpe:2004_0008

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