Endogenous mergers under multi-market competition

Kao, Tina and Menezes, Flavio M. (2009). Endogenous mergers under multi-market competition. In: B. Cornet, Journal of Mathematical Economics. 17th European Workshop on Equilibrium Theory, Paestum, Italy, (817-829). 13-15 June, 2008. doi:10.1016/j.jmateco.2009.06.013

Author Kao, Tina
Menezes, Flavio M.
Title of paper Endogenous mergers under multi-market competition
Conference name 17th European Workshop on Equilibrium Theory
Conference location Paestum, Italy
Conference dates 13-15 June, 2008
Proceedings title Journal of Mathematical Economics   Check publisher's open access policy
Journal name Journal of Mathematical Economics   Check publisher's open access policy
Place of Publication The Netherlands
Publisher North-Holland Pub. Co.
Publication Year 2009
Sub-type Fully published paper
DOI 10.1016/j.jmateco.2009.06.013
ISSN 0304-4068
Editor B. Cornet
Volume 45
Issue 12
Start page 817
End page 829
Total pages 13
Collection year 2010
Language eng
Abstract/Summary This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.
Subjects C1
140209 Industry Economics and Industrial Organisation
Keyword Mergers
Multi-market competition
Cournot externality
Cost efficiency
Q-Index Code C1
Q-Index Status Confirmed Code

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Created: Thu, 22 Apr 2010, 09:39:04 EST by Alys Hohnen on behalf of School of Economics