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Profitable Mergers in a Cournot Model of Spatial Competition

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  • George Norman
  • Lynne Pepall

Abstract

This paper investigates the profitability and locational effects of mergers when Cournot firms compete in spatially differentiated markets. A two‐firm merger is generally profitable because the merged partners can coordinate their location decisions. The merged firm locates its plants outside the market quartiles with distance from the market center being an increasing function of the number of nonmerged firms remaining at the market center. Profitable two‐firm mergers reduce competitive pressure, leading to higher prices and reduced consumer surplus. The merger increases total surplus by increased locational efficiency and the increased profits of the merged and nonmerged firms.

Suggested Citation

  • George Norman & Lynne Pepall, 2000. "Profitable Mergers in a Cournot Model of Spatial Competition," Southern Economic Journal, John Wiley & Sons, vol. 66(3), pages 667-681, January.
    • Handle: RePEc:wly:soecon:v:66:y:2000:i:3:p:667-681
    DOI: 10.1002/j.2325-8012.2000.tb00280.x
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    References listed on IDEAS

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    1. repec:bla:econom:v:42:y:1975:i:168:p:401-19 is not listed on IDEAS
    2. Farrell, Joseph & Shapiro, Carl, 1990. "Horizontal Mergers: An Equilibrium Analysis," American Economic Review, American Economic Association, vol. 80(1), pages 107-126, March.
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    Cited by:

    1. Bisma Afzal Shah, 2019. "Shareholder Wealth Effects from Mergers and Acquisitions in the Indian Industry," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 10(1), pages 34-47, January.
    2. Darlene Chisholm & Margaret McMillan & George Norman, 2010. "Product differentiation and film-programming choice: do first-run movie theatres show the same films?," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 34(2), pages 131-145, May.
    3. David Soberman, 2022. "Business Expansion Through Acquisition," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 9(3), pages 74-94, December.

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