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When Multiple Merged Entities Lead in Stackelberg Oligopolies

Walter Ferrarese ()
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Walter Ferrarese: Università di Roma Tor Vergata

Review of Industrial Organization, 2020, vol. 56, issue 1, No 7, 142 pages

Abstract: Abstract I study a merger model among symmetric Cournot firms where—before a merger occurs—firms choose output simultaneously and in which a merged entity acquires the market leadership. I find conditions under which a single or multiple mergers are profitable and solve the free-riding problem. The model connects to Liu and Wang (Econ Lett 129:1–3, 2015), who show that a single leading entity can profitably merge with an arbitrary number of firms. The current paper extends their results in two directions: first, I find the conditions under which the free-riding issue is solved; second, I study the implications of multiple mergers, in which the merged entities are allowed to be heterogeneous in the number of merging firms. A welfare analysis shows that mergers may be welfare-enhancing—even without efficiency gains. Moreover, the set of welfare-enhancing mergers is the same irrespective of the measure that is used: consumer surplus only, or the sum of consumer surplus and industry profits. This suggests caution for the antitrust authorities in evaluating the overall effect of these mergers.

Keywords: Horizontal mergers; Stackelberg markets; Welfare (search for similar items in EconPapers)
JEL-codes: L11 L13 L22 L41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11151-019-09678-6

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Handle: RePEc:kap:revind:v:56:y:2020:i:1:d:10.1007_s11151-019-09678-6