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When to merge with a lower quality producer?

Author

Listed:
  • Neelanjan Sen

    (Madras School of Economics)

  • Uday Bhanu Sinha

    (University of Delhi)

Abstract

This paper studies the possibility of different types of mergers when firms produce vertically and horizontally differentiated products. Two firms produce a better quality product, while the third firm produces a lower quality product and the firms compete in quantities. The merger of two firms that produce better-quality products is possible if the quality difference (net of cost) or the horizontal product differentiation are high. However, if the quality difference (net of cost) and the horizontal product differentiation are neither too high nor too low, then the firm that produces the better quality product will merge with the firm that produces a lower quality product. Welfare may increase after the merger between the two firms that produce different quality products. However, if the two firms that produce the better quality product merge then welfare always falls.

Suggested Citation

  • Neelanjan Sen & Uday Bhanu Sinha, 2023. "When to merge with a lower quality producer?," Journal of Economics, Springer, vol. 138(2), pages 165-188, March.
    • Handle: RePEc:kap:jeczfn:v:138:y:2023:i:2:d:10.1007_s00712-022-00807-6
    DOI: 10.1007/s00712-022-00807-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Merger; Oligopoly; Product differentiation; Quality; Cournot;
    All these keywords.

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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