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Do Merger Efficiencies Always Mitigate Price Increases?

Zhiqi Chen () and Gang Li

Journal of Industrial Economics, 2018, vol. 66, issue 1, 95-125

Abstract: In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post†merger prices under certain conditions. Specifically, when the degree of substitutability between the two insiders is not too high relative to that between an insider and an outsider, increased efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that efficiencies will necessarily mitigate the anticompetitive effects of the merger.

Date: 2018
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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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