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The Welfare Consequences of Mergers with Endogenous Product Choice
Author(s) -
Mazzeo Michael J.,
Seim Katja,
Varela Mauricio
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.12190
Subject(s) - competitor analysis , profitability index , incentive , microeconomics , welfare , product (mathematics) , industrial organization , consumer welfare , variety (cybernetics) , product differentiation , economics , set (abstract data type) , business , product market , merger control , marketing , cournot competition , computer science , market economy , geometry , mathematics , finance , artificial intelligence , programming language , commission
Merger simulations focus on the price changes that result once previously independent competitors set prices jointly and other market participants respond. We consider the incentives for firms to adjust the set of offered products after a merger. Using a model of product choice and pricing, we conduct simulations of equilibrium market outcomes of a merger in a variety of scenarios. Product offering adjustments result in additional effects on profitability and consumer welfare not realized by price responses only, particularly when the merging parties offer relatively similar products pre‐merger. Cost synergies may furthermore entail the pro‐competitive introduction of additional products.