The impact of horizontal mergers and acquisitions in price competition models
By: Awi Federgruen, Margaret Pierson
Contributors: Pierson, Margaret; Harvard Business School
Series: Working paper / Harvard Business School -- 12-031; Working paper (Harvard Business School) -- 12-031
Publisher: Harvard Business School
Published: 2011
Place of publication: Boston]
Language: eng
Number of pages: 17
Description: The question of what impact mergers and acquisitions have on key equilibrium performance measures is fundamental to our understanding of competitive dynamics in an oligopolistic industry. We address these questions in the context of price competition models with differentiated goods and asymmetric firms allowing for general non-linear demand and cost functions merely assuming that both the pre- and post-merger competition games are supermodular along with two minor technical conditions. We show that, in the absence of cost synergies, post-merger equilibrium prices exceed their pre-merger levels. Moreover, the post-merger equilibrium profit of the merged firms exceeds the aggregate of the premerger equilibrium profits of the merging firms. The equilibrium profit of the non-merging firms increases as well. We establish our results, at first, for settings where each firm in the industry offers a single product; we then generalize them to industries with multi-product firms. We also derive conditions under which cost synergies, by themselves, result in lower equilibrium prices than otherwise observe post-merger, and discuss how the combined effect of increased market concentration and cost synergies can be assessed efficiently.
Notes: "October 2011" -- Publisher's website.

Includes bibliographical references.