Sequential entry and merger in spatial price discrimination

This paper newly introduces sequential entry into previous models of spatial price discrimination that examine location choices made in anticipation of a potential merger. While merger with simultaneous entry routinely reduces social welfare, we show that mergers frequently improve welfare. The extent of welfare improving mergers varies inversely with the timing advantage of an excluded rival. When the rival locates alone in the first stage, the merger harms welfare. When the rival locates alone in the last stage, the merger improves welfare. These results hold true when allocating three firms across either two or three location stages. Thus, allowing staged entry dramatically alters and often reverses the conclusion previously drawn on the basis of simultaneous entry. Copyright Springer-Verlag 2013