When to merge with a lower quality producer?

Neelanjan Sen and Uday Sinha

Journal of Economics, 2023, vol. 138, issue 2, No 5, 165-188

Abstract: Abstract This paper studies the possibility of different types of mergers when firms produce vertically and horizontally differentiated products. Two firms produce a better quality product, while the third firm produces a lower quality product and the firms compete in quantities. The merger of two firms that produce better-quality products is possible if the quality difference (net of cost) or the horizontal product differentiation are high. However, if the quality difference (net of cost) and the horizontal product differentiation are neither too high nor too low, then the firm that produces the better quality product will merge with the firm that produces a lower quality product. Welfare may increase after the merger between the two firms that produce different quality products. However, if the two firms that produce the better quality product merge then welfare always falls.

Keywords: Merger; Oligopoly; Product differentiation; Quality; Cournot (search for similar items in EconPapers)
JEL-codes: D12 D43 L13 L24 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:138:y:2023:i:2:d:10.1007_s00712-022-00807-6

DOI: 10.1007/s00712-022-00807-6

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