The Competitive Effects of Mergers with Cournot Competition
48 Pages Posted: 24 Jul 2021 Last revised: 19 Jan 2024
Date Written: January 18, 2024
Abstract
This paper provides a full characterization of the competitive effects of horizontal mergers in the Cournot model with heterogeneous firms and constant marginal costs. We show that the cost efficiencies needed to prevent a price increase are substantially larger than the actual price effect of a merger. Price effects turn out to depend only on the smaller merging firm's share and the number of firms but are independent of the distribution of shares among other firms. Standard concentration measures, instead, can be seriously misleading. We provide simple---yet general---closed-form solutions for merger effects based on intuitive pre-merger parameters.
Keywords: Cournot competition, mergers, price effects, demand curvature, Merger Guidelines
JEL Classification: D21, D43, K21, L13, L41
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