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Pro-competitive horizontal merger with cost reducing investments and network externalities

Author

Listed:
  • Swapnendu Banerjee

    (Jadavpur University)

  • Arijit Mukherjee

    (Nottingham University Business School
    CESifo
    INFER
    GRU, City University of Hong Kong)

  • Sougata Poddar

    (University of Iowa)

Abstract

We show that a merger can be pro-competitive in an industry with horizontally differentiated network goods and cost reducing investments. If there is firm-specific (industry-wide) network compatibility, the merged firm may produce all the products or one product (the merged firm produces all the products). Under both firm-specific and industry-wide compatibilities, merger may increase consumer surplus even for weak network externalities if the products are not close substitutes. In the case of firm-specific (industry-wide) network compatibility, there are situations where merger reduces (increases) consumer surplus under network externalities but increases (reduces) consumer surplus under no network externality. Hence, the antitrust authorities may (may not) need to be overly concerned about mergers in the presence of network externalities if there is firm-specific (industry-wide) network compatibility.

Suggested Citation

  • Swapnendu Banerjee & Arijit Mukherjee & Sougata Poddar, 2025. "Pro-competitive horizontal merger with cost reducing investments and network externalities," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(1), pages 145-162, April.
    • Handle: RePEc:spr:etbull:v:13:y:2025:i:1:d:10.1007_s40505-024-00285-7
    DOI: 10.1007/s40505-024-00285-7
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    More about this item

    Keywords

    Consumer surplus; Investment; Merger; Network; Product differentiation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L00 - Industrial Organization - - General - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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