Reference

Marc Bourreau, and Bruno Jullien, Mergers, investments and demand expansion, Economics Letters, Elsevier, vol. 167, June 2018, pp. 136–141.

Abstract

In this paper, we study the impact of a merger to monopoly on prices and investments. Two single-product firms compete in prices and coverage for a new technology. In equilibrium, one firm covers a larger territory than its competitor with the new technology, leading to singleproduct and multi-product zones, and sets a higher uniform price. If the firms merge, the merged entity can set different prices and coverage for the two products. We find that the merger raises prices and total coverage, but reduces the coverage of the multi-product zone. We also show that the merger can increase total welfare and consumer welfare.

Keywords

horizontal mergers; investments; competition;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • L13: Oligopoly and Other Imperfect Markets
  • L40: General