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Profitable Mergers in a Cournot Model of Spatial Competition
Author(s) -
Norman George,
Pepall Lynne
Publication year - 2000
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2000.tb00280.x
Subject(s) - cournot competition , profitability index , competition (biology) , industrial organization , economic surplus , economics , microeconomics , function (biology) , market share , business , market economy , finance , welfare , ecology , evolutionary biology , biology
This paper investigates the profitability and locational effects of mergers when Cournot firms compete in spatially differentiated markets. A two‐firm merger is generally profitable because the merged partners can coordinate their location decisions. The merged firm locates its plants outside the market quartiles with distance from the market center being an increasing function of the number of nonmerged firms remaining at the market center. Profitable two‐firm mergers reduce competitive pressure, leading to higher prices and reduced consumer surplus. The merger increases total surplus by increased locational efficiency and the increased profits of the merged and nonmerged firms.