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The effect of horizontal mergers, when firms compete in prices and investments

Massimo Motta () and Emanuele Tarantino

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

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: K22 D43 L13 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino, nep-law, nep-mic and nep-mkt
Date: 2017-08
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Related works:
Working Paper: The Effect of Horizontal Mergers, When Firms compete in Prices and Investments (2018) Downloads
Working Paper: The Effect of Horizontal Mergers, when Firms Compete in Prices and Investments (2017) Downloads
Working Paper: The effect of horizontal mergers, when firms compete in prices and investments (2017) Downloads
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