Profitable Competition With Mergers

Abstract

This paper investigates the profitability of a decrease in the degree of product differentiation. We consider some merger problems and obtain two results in both Cournot and Bertrand: First, upstream firms can increase their profits as the degree of product differentiation decreases when they take place intra-brand mergers. In that case, the welfare level is lower when upstream competition exists than when not. Second, an efficient firm loses its benefit as the degree of product differentiation decreases while the rival inefficient firm may increase its profit. It contrasts with Zanchettin (2006).

Keywords: Product Differentiation, Multi-Product Firm (MPF), Cournot and Bertrand, Double Marginalization, Merger

JEL Classification: L13, D43