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Spatial Competition and Location with Mergers and Product Licensing

Author

Listed:
  • George Norman

    (Department of Economics, Tufts University, MedFord, MA 02155, USA, gnorman@emerald.tufts.edu)

  • Lynne Pepall

    (Department of Economics, Tufts University, MedFord, MA 02155, USA, lpepal01@emerald.tufts.edu)

Abstract

This paper analyses mergers by Cournot firms producing differentiated products in a spatial market with product licensing by the merged firms. Product licensing allows the merged firms to co-ordinate their locations. If the degree of differentiation is not 'too low', a two-firm merger is more profitable for the merged firms than for the non-merged firms. The locational advantage created by the merger leads to the additional profit from the merger being an increasing function of the number of firms in the market. A two-firm merger generally increases total surplus and is therefore efficiency-enhancing. Moreover, there are circumstances in which every firm in the market wants to find a merger partner, consistent with the wave of mergers characteristic of many markets.

Suggested Citation

  • George Norman & Lynne Pepall, 2000. "Spatial Competition and Location with Mergers and Product Licensing," Urban Studies, Urban Studies Journal Limited, vol. 37(3), pages 451-470, March.
    • Handle: RePEc:sae:urbstu:v:37:y:2000:i:3:p:451-470
    DOI: 10.1080/0042098002050
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    References listed on IDEAS

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