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Losses from Horizontal Merger: an Extension to a Successive Oligopoly Model with Product Differentiation
Author(s) -
FauliOller Ramon,
MesaSánchez Borja
Publication year - 2015
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12082
Subject(s) - product differentiation , oligopoly , economics , competition (biology) , upstream (networking) , industrial organization , microeconomics , downstream (manufacturing) , product (mathematics) , extension (predicate logic) , cournot competition , operations management , mathematics , computer science , telecommunications , ecology , geometry , programming language , biology
This paper generalizes the model of Salant et al . (1983; Quarterly Journal of Economics , Vol. 98, pp. 185–199) to a successive oligopoly model with product differentiation. Upstream firms produce differentiated goods, retailers compete in quantities, and supply contracts are linear. We show that if retailers buy from all producers, downstream mergers do not affect wholesale prices. Our result replicates that of Salant's, where mergers are not profitable unless the size of the merged firm exceeds 80 per cent of the industry. This result is robust to the type of competition.