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 postmerger prices under certain conditions. Specifically, when the degree of substitutability is low between the products offered by the two insiders but high between those by an insider and an outsider, increased merger 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 merger efficiencies will necessarily mitigate the anticompetitive effects of the merger. Prices can go up because of large efficiencies.

Additional Metadata
Keywords Merger efficiencies, Cournot model, Product differentiation
JEL Oligopoly and Other Imperfect Markets (jel L13), Antitrust Issues and Policies: General (jel L40)
Publisher Department of Economics
Series Carleton Economic Papers
Citation
Chen, Z, & Li, Gang. (2016). Do Merger Efficiencies Always Mitigate Price Increases? (No. CEP 17-02). Carleton Economic Papers. Department of Economics.