Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus

Charles Thomas

Journal of Industrial Economics, 2021, vol. 69, issue 3, 730-741

Abstract: In a standard procurement model I show that consumer surplus can increase after rival sellers consummate a profitable merger that generates no cost savings. This finding contrasts sharply with conventional wisdom in antitrust that horizontal mergers without efficiencies must enhance sellers’ market power to be profitable, thereby harming buyers. The model fits industries in which individual buyers conduct distinct procurement contests for which sellers incur costs to participate, say to assess their cost of fulfilling the contract. Mergers benefit buyers by inducing stronger contest‐level entry, echoing common claims from merging parties that their merger improves competition by creating a stronger competitor.

Date: 2021
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https://doi.org/10.1111/joie.12249

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Working Paper: Profitable Horizontal Mergers Without Efficiencies Can Increase Consumer Surplus (2017)
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