The Effect of Horizontal Mergers, when Firms Compete in Prices and Investments

Massimo Motta () and Emanuele Tarantino

No 987, Working Papers from Barcelona School of Economics

Abstract: It has been suggested that mergers, by increasing concentration, raise incentives to invest and hence are pro-competitive. To study the effects of mergers, we rewrite a game with simultaneous price and cost-reducing investment choices as one where firms only choose prices, and make use of aggregative game theory. We find no support for that claim: absent efficiency gains, the merger lowers total investments and consumer surplus. Only if it entails sufficient efficiency gains, will it be pro-competitive. We also show there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.

Keywords: horizontal mergers; innovation; investments; network-sharing agreements; competition (search for similar items in EconPapers)
JEL-codes: D43 K22 L13 L41 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
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Related works:
Journal Article: The effect of horizontal mergers, when firms compete in prices and investments (2021)
Working Paper: The Effect of Horizontal Mergers, When Firms compete in Prices and Investments (2018)
Working Paper: The effect of horizontal mergers, when firms compete in prices and investments (2017)
Working Paper: The effect of horizontal mergers, when firms compete in prices and investments (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:987

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