Welfare Enhancing Mergers under Product Differentiation

Kao, Tina and Menezes, Flavio (2007). Welfare Enhancing Mergers under Product Differentiation. Discussion Paper No. 350, School of Economics, The University of Queensland.

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Author Kao, Tina
Menezes, Flavio
Title Welfare Enhancing Mergers under Product Differentiation
School, Department or Centre School of Economics
Institution The University of Queensland
Open Access Status Other
Series Discussion Paper
Report Number No. 350
Publication date 2007-09
Publisher The University of Queensland School of Economics
Language eng
Subject 350299 Business and Management not elsewhere classified
340203 Finance Economics
Abstract/Summary We follow the duopoly framework with differentiated products as in Singh and Vives (1984) and Zanchettin (2006) and examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the merger increases total welfare if the cost asymmetry falls into a specific range. Furthermore, this parameter range widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.
Keyword merger
differentiated products
cost asymmetry
welfare effects
price competition

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Created: Mon, 22 Oct 2007, 13:38:44 EST by Belinda Weaver on behalf of School of Economics