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Horizontal mergers and product quality

Brekke, Kurt Richard; Siciliani, Luigi; Straume, Odd Rune
Working paper
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URI
http://hdl.handle.net/11250/163396
Date
2014-02
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  • Discussion papers (SAM) [638]
Abstract
Using a spatial competition framework with three ex ante identical firms, we study the effects

of a horizontal merger on quality, price and welfare. The merging firms always reduce quality.

They also increase prices if demand responsiveness to quality is sufficiently low. The non-merging

firm, on the other hand, always responds by increasing both quality and prices. Overall, a merger

leads to higher average prices and quality in the market. The welfare implications of a merger are

not clear-cut. If the demand responsiveness to quality is sufficiently high, some consumers benefit

from the merger and social welfare might also increase.
Publisher
Norwegian School of Economics. Department of Economics
Series
Discussion paper;4/2014

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