Product Differentiation, Cost-Reducing Mergers, and Consumer Welfare

George Norman (), Lynne Pepall and Daniel Richards ()

No 214, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: Cost synergies are an explicitly recognized justification for a two-firm merger and empirical techniques are now widely used to assess the impact of cost-reducing mergers on prices and welfare in the postmerger market. We show that if the merger occurs in a vertically product differentiated market then the merger will lead to a reduction in product offerings that limits the usefulness of pre-merger empirical estimates. Indeed, we further show that in such markets, two-firm merges will lead to higher prices regardless of the merger’s cost-savings. We show that our results may obtain even when we allow for post-merger entry.

Keywords: mergers; cost synergies; vertical product differentiation (search for similar items in EconPapers)
JEL-codes: L10 L41 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (3)

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Journal Article: Product differentiation, cost-reducing mergers, and consumer welfare (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:tuf:tuftec:0214

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