Mergers, welfare, and concentration: Results from a model of stackelberg-cournot oligopoly

Nick Feltovich

Atlantic Economic Journal, 2001, vol. 29, issue 4, 378-392

Abstract: This paper explores the relationship between mergers, welfare, and concentration, using a two-stage oligopoly model that generalizes the Cournot and Stackelberg models. This model has been used to show that some profitable mergers raise welfare and that some welfare-lowering mergers are unprofitable. Based on this, one might conclude that policy designed to restrict mergers is unnecessary or even counterproductive. This present paper examines in greater detail the implications of this model and finds that a merger's effects depend not only on the reduction in the number of firms, but also on premerger and postmerger firm behavior. In fact, most mergers lower welfare, and many of these are profitable. Usually, but not always, changes in concentration and welfare are negatively related. Copyright International Atlantic Economic Society 2001

Date: 2001
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DOI: 10.1007/BF02299328

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