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Competitive effects of horizontal mergers with asymmetric firms

Author

Listed:
  • Edmond Baranes

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

  • Hung Cuong Vuong

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

Abstract

This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.

Suggested Citation

  • Edmond Baranes & Hung Cuong Vuong, 2021. "Competitive effects of horizontal mergers with asymmetric firms," Post-Print hal-03547206, HAL.
    • Handle: RePEc:hal:journl:hal-03547206
    DOI: 10.2139/ssrn.3823744
    Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-03547206
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    Cited by:

    1. Lefouili, Yassine & Madio, Leonardo, 2023. "Market Structure and Investments : A Progress Report," TSE Working Papers 23-1491, Toulouse School of Economics (TSE), revised Sep 2024.

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