Endogenous Mergers Under Multi-Market Competition

Tina Kao () and Flavio Menezes

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increasing producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.

JEL-codes: L11 L13 L44 (search for similar items in EconPapers)
Pages: 23 Pages
Date: 2009-10
New Economics Papers: this item is included in nep-com, nep-cse and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://www.cbe.anu.edu.au/researchpapers/econ/wp507.pdf (application/pdf)

Related works:
Journal Article: Endogenous mergers under multi-market competition (2009)
Working Paper: Endogenous Mergers under Multi-Market Competition (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2009-507

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