The effect of horizontal mergers, when firms compete in prices and investments

Recognition Program

Open Access       

Authors: Massimo Motta and Emanuele Tarantino

International Journal of Industrial Organization, Vol. 78, September, 2021

Motivated by a number of high-profile antitrust cases, we study mergers when firms offer differentiated products and compete in prices and investments. Since the net effect of the merger is a priori ambiguous, we use aggregative game theory to sign it: we find that absent efficiency gains, the merger always reduces total investments and consumer surplus. We also prove that there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.

This paper originally appeared as Barcelona School of Economics Working Paper 987
This paper is acknowledged by the Barcelona School of Economics Recognition Program