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Welfare‐Reducing Mergers in Differentiated Oligopolies with Free Entry *
Author(s) -
ERKAL NISVAN,
PICCININ DANIEL
Publication year - 2010
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2009.00612.x
Subject(s) - oligopoly , welfare , harm , consumer welfare , free entry , economic surplus , business , industrial organization , product differentiation , barriers to entry , economics , microeconomics , market economy , market structure , political science , law
Antitrust authorities regard the possibility of post‐merger entry and merger‐generated efficiencies as two factors that may counteract the negative effects of horizontal mergers. This article shows that in differentiated oligopolies with linear demand, all entry‐inducing mergers harm consumer welfare. This is because if there is entry following a merger, it implies that the merger‐generated efficiencies were not sufficiently large. Mergers which induce exit, owing to sufficiently high cost savings, always improve consumer welfare.