The Welfare Consequences of Mergers with Endogenous Product Choice

Michael J. Mazzeo, Katja Seim and Mauricio Varela

Journal of Industrial Economics, 2018, vol. 66, issue 4, 980-1016

Abstract: Merger simulations focus on the price changes that result once previously independent competitors set prices jointly and other market participants respond. We consider the incentives for firms to adjust the set of offered products after a merger. Using a model of product choice and pricing, we conduct simulations of equilibrium market outcomes of a merger in a variety of scenarios. Product offering adjustments result in additional effects on profitability and consumer welfare not realized by price responses only, particularly when the merging parties offer relatively similar products pre‐merger. Cost synergies may furthermore entail the pro‐competitive introduction of additional products.

Date: 2018
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