Pro-competitive horizontal merger with cost reducing investments and network externalities

Swapnendu Banerjee, Arijit Mukherjee and Sougata Poddar ()
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Swapnendu Banerjee: Jadavpur University
Sougata Poddar: University of Iowa

Economic Theory Bulletin, 2025, vol. 13, issue 1, No 10, 145-162

Abstract: Abstract We show that a merger can be pro-competitive in an industry with horizontally differentiated network goods and cost reducing investments. If there is firm-specific (industry-wide) network compatibility, the merged firm may produce all the products or one product (the merged firm produces all the products). Under both firm-specific and industry-wide compatibilities, merger may increase consumer surplus even for weak network externalities if the products are not close substitutes. In the case of firm-specific (industry-wide) network compatibility, there are situations where merger reduces (increases) consumer surplus under network externalities but increases (reduces) consumer surplus under no network externality. Hence, the antitrust authorities may (may not) need to be overly concerned about mergers in the presence of network externalities if there is firm-specific (industry-wide) network compatibility.

Keywords: Consumer surplus; Investment; Merger; Network; Product differentiation (search for similar items in EconPapers)
JEL-codes: D43 G34 L00 O30 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40505-024-00285-7

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