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Can Horizontal Mergers Without Synergies Increase Consumer Welfare? Cournot and Bertrand Competition Under Uncertain Demand

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  • Shieh Shiou

    (Department of Economics, National Taipei University, New Taipei City, Taiwan)

  • Huang Chi-Fei

    (Department of Economics, National Taipei University, New Taipei City, Taiwan)

  • Chen Hsiao-Chi

    (Department of Economics, National Taipei University, New Taipei City, Taiwan)

Abstract

We analyze the welfare effects of horizontal mergers in a model wherein firms produce differentiated products and possess asymmetric information about uncertain market demand. Mergers do not bring about synergies or cost savings, but do allow firms to share their market demand information. We find that under Cournot competition, mergers without synergies could increase expected consumer surplus and social welfare, provided that market volatility is sufficiently large. The parameter spaces in which mergers are beneficial to consumers and society widen when products are more differentiated. In contrast, under Bertrand competition, mergers are always welfare reducing regardless of the degree of market volatility and extent of product differentiation. The driving force for the contrasting results lies in opposing welfare effects of information sharing in the contexts of quantity and price setting.

Suggested Citation

  • Shieh Shiou & Huang Chi-Fei & Chen Hsiao-Chi, 2013. "Can Horizontal Mergers Without Synergies Increase Consumer Welfare? Cournot and Bertrand Competition Under Uncertain Demand," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 453-484, April.
    • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:1:p:453-484:n:8
    DOI: 10.1515/bejeap-2012-0049
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    References listed on IDEAS

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    1. Stennek Johan, 2003. "Horizontal Mergers Without Synergies May Increase Consumer Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-14, January.
    2. Choné, Philippe & Linnemer, Laurent, 2008. "Assessing horizontal mergers under uncertain efficiency gains," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 913-929, July.
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