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Do Merger Efficiencies Always Mitigate Price Increases?

Zhiqi Chen () and Gang Li ()
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Gang Li: School of Economics, Nanjing University

No 17-02, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post- merger prices under certain conditions. Specifically, when the degree of substitutability is low between the products offered by the two insiders but high between those by an insider and an outsider, increased merger efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that merger efficiencies will necessarily mitigate the anticompetitive effects of the merger. Prices can go up because of large efficiencies.

Keywords: Merger efficiencies; Cournot model; Product differentiation (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ind
Date: 2017-01-09
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Published: Carleton Economic Papers

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Journal Article: Do Merger Efficiencies Always Mitigate Price Increases? (2018) Downloads
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