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Whom should I merge with? How product substitutability affects merger profitability

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  • Roberto Cellini

    (University of Catania)

Abstract

The paper presents a simple model of oligopoly, in which three firms produce differentiated goods. The degree of product substitutability is not uniform across goods. Merger profitability from the firms’ perspective is investigated. The model shows that the merger profitability depends on the degree of good differentiation. Contrary to what seems to emerge from different models, merger between firms that supply “more similar” product is more profitable as compared to merger between firms supplying more differentiated goods.

Suggested Citation

  • Roberto Cellini, 2021. "Whom should I merge with? How product substitutability affects merger profitability," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 337-353, September.
    • Handle: RePEc:spr:epolin:v:48:y:2021:i:3:d:10.1007_s40812-020-00180-9
    DOI: 10.1007/s40812-020-00180-9
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    Cited by:

    1. Neelanjan Sen & Drishti Narula, 2022. "Merger under horizontal and vertical product differentiation," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(4), pages 509-531, December.
    2. 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.

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    More about this item

    Keywords

    Oligopoly; Merger; Profitability; Merger paradox;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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