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
Keywords Merger, capacity constraints, Bertrand-Edgeworth model
Publisher Department of Economics
Series Carleton Economic Papers
Citation
Chen, Z, & Li, Gang. (2014). Horizontal Mergers in the Presence of Capacity Constraints (No. CEP 14-11). Carleton Economic Papers. Department of Economics.