2014-09-01
Horizontal Mergers in the Presence of Capacity Constraints
Publication
Publication
CEP 14-11
We analyze the effects of a merger between two competitors in a Bertrand-Edgeworth model. The merger has no effect on equilibrium prices if a pure strategy equilibrium prevails both before and after the merger. Otherwise, the merger leads to higher prices. In the case where a mixed strategy equilibrium prevails before and after the merger, for example, the support of the price distributions shifts rightward after the merger and the post-merger price distribution of each firm stochastically dominates its pre-merger counterpart. The pre-merger capacity level of each firm plays a crucial role in determining the effects of the merger.
Additional Metadata | |
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Merger, capacity constraints, Bertrand-Edgeworth model | |
Department of Economics | |
Carleton Economics Working Papers (CEWP) | |
Organisation | Department of Economics |
Chen, Z, & Li, Gang. (2014). Horizontal Mergers in the Presence of Capacity Constraints (No. CEP 14-11). Carleton Economics Working Papers (CEWP). Department of Economics.
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