Efficiency-Enhancing Horizontal Mergers in Spatial Competition with Network Externalities

Lei Bao and Wenshi Yu ()
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Lei Bao: School of Economics and Management, Huaiyin Normal University, Huai’an 223001, China
Wenshi Yu: School of Economics, Shandong University, Jinan 250100, China

Mathematics, 2022, vol. 10, issue 18, 1-13

Abstract: We study horizontal mergers in a network products market with a three-firm model of spatial competition, where two merged firms become compatible at the expense of product differentiation. We consider two different approaches to modeling rational expectations: responsive and passive. The results show that the merger may reduce industry competition, since the merger-related compatibility enlarges the network scales for insiders and amplifies product differentiation between the insiders and the outsider; therefore, the proposed merger may benefit all firms, raise consumer surplus, and enhance social welfare, i.e., the merger is Pareto-improving.

Keywords: mergers; compatibility; network externalities; expectations (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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