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Mix-and-Match Divestitures and Merger Harm

Simon Loertscher and Leslie M. Marx
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Simon Loertscher: University of Melbourne
Leslie M. Marx: Duke University

The Japanese Economic Review, 2019, vol. 70, issue 3, No 7, 346-366

Abstract: Abstract We consider the effects of a merger combined with a divestiture that mixes and matches the assets of the two pre-merger suppliers into one higher-cost and one lower-cost post-merger supplier. Such mix-and-match transactions leave the number of suppliers in a market unchanged but, as we show, can be procompetitive or anticompetitive depending on whether buyers are powerful and on the extent of outside competition. A powerful buyer can benefit from a divestiture that creates a lower-cost supplier, even if it causes the second-lowest cost to increase. In contrast, a buyer without power is always harmed by a weakening of the competitive constraint on the lowest-cost supplier.

Keywords: D44; D82; L41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1111/jere.12237

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