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Equilibrium mergers in a composite good industry with efficiencies

Cristina Pardo-Garcia and José Sempere-Monerris ()

No 2013067, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper studies equilibrium merging behavior in composite good industries. Component producers face the option to either merge with a similar component producer (horizontal merger) or a complementary one (complementary merger) of a composite good. Focusing only on strategic reasons, complementary mergers arise at equilibrium only when composite goods are very differentiated while horizontal mergers otherwise. Next, when efficiencies are considered, the level of marginal cost saving required for a horizontal merger in a composite industry to result in a non- increase in the upward price pressure index (UPPI) is greater as compared with the one in a regular industry. This result can be used by antitrust authorities to be more demanding when dealing with horizontal mergers in composite goods industries.

Keywords: composite goods; substitutes; complements; horizontal merger; complementary merger; efficiency effects; UPPI; diversion ratio (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Date: 2013-12-31
New Economics Papers: this item is included in nep-com and nep-ind
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Journal Article: Equilibrium mergers in a composite good industry with efficiencies (2015) Downloads
Working Paper: Equilibrium mergers in a composite good industry with efficiencies (2015)
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