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Horizontal mergers, cost savings, and network effects

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  • Andreea Cosnita-Langlais

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Alexander Rasch

Abstract

We consider a horizontally differentiated oligopoly and investigate the relationship between merger cost savings and network effects for the incentives of firms to merge and for the postmerger welfare outcomes. We show that it is more profitable to be an insider rather than an outsider of the merger, unless both cost savings and network effects are too low. Mergers can improve customer and total welfare provided both cost savings and network effects are high enough. We find that the possibility for network effects to lead to a Pareto improvement through merger is shown to depend on the number of outside firms.

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  • Andreea Cosnita-Langlais & Alexander Rasch, 2023. "Horizontal mergers, cost savings, and network effects," Post-Print hal-03685881, HAL.
    • Handle: RePEc:hal:journl:hal-03685881
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    Cited by:

    1. Lei Bao & Wenshi Yu, 2022. "Efficiency-Enhancing Horizontal Mergers in Spatial Competition with Network Externalities," Mathematics, MDPI, vol. 10(18), pages 1-13, September.

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