Premium
Search costs, demand‐side economies, and the incentives to merge under Bertrand competition
Author(s) -
MoragaGonzález José L.,
Petrikaitė Vaiva
Publication year - 2013
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12024
Subject(s) - merge (version control) , bertrand competition , incentive , microeconomics , economics , welfare , industrial organization , bertrand paradox (economics) , business , market economy , cournot competition , oligopoly , computer science , information retrieval
We study the incentives to merge and the aggregate implications of mergers in a Bertrand competition model where firms sell differentiated products and consumers search sequentially for satisfactory deals. When search frictions are substantial, firms have an incentive to merge and to retail their products within a single store, which induces consumers to begin their search there. Such a merger lowers the profits of the outsiders and may benefit consumers due to more efficient search. Overall welfare may even increase. If the merged entity limits itself to coordinating the prices of the constituent firms, merging may not be profitable.