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Do Merger Efficiencies Always Mitigate Price Increases?
Author(s) -
Chen Zhiqi,
Li Gang
Publication year - 2018
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12162
Subject(s) - cournot competition , insider , competition (biology) , marginal cost , microeconomics , economics , industrial organization , monetary economics , business , ecology , political science , law , biology
In a Cournot model with differentiated products, we demonstrate that merger efficiencies in the form of lower marginal costs for the merging firms (the insiders) lead to higher post‐merger prices under certain conditions. Specifically, when the degree of substitutability between the two insiders is not too high relative to that between an insider and an outsider, increased efficiencies may exert upward rather than downward pressure on the prices of the merging firms. Our results suggest that in cases where firms engage in quantity competition, antitrust authorities should not presume that efficiencies will necessarily mitigate the anticompetitive effects of the merger.