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On Mergers in Consumer Search Markets

Maarten Janssen

University of Vienna

José L. Moraga-González

VU University Amsterdam; University of Groningen

July 2007

We study mergers in a market where N firms sell a homogeneous good and consumers search sequentially to discover prices. The main motivation for such an analysis is that mergers generally affect market prices and thereby, in a search environment, the search behavior of consumers. Endogenous changes in consumer search may strengthen, or alternatively, offset the primary effects of a merger. Our main result is that the level of search costs are crucial in determining the incentives of firms to merge and the welfare implications of mergers. When search costs are relatively small, mergers turn out not to be profitable for the merging firms. If search costs are relatively high instead, a merger causes a fall in average price and this triggers search. As a result, non-shoppers who didn't find it worthwhile to search in the pre-merger situation, start searching post-merger. We show that this change in the search composition of demand makes mergers incentive-compatible for the firms and, in some cases, socially desirable.

Number of Pages in PDF File: 36

Keywords: consumer search; mergers; price dispersion

JEL Classification: D40; D83; L13

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Date posted: July 21, 2007  

Suggested Citation

Janssen, Maarten and Moraga-González, José L., On Mergers in Consumer Search Markets (July 2007). Available at SSRN: https://ssrn.com/abstract=1001227 or http://dx.doi.org/10.2139/ssrn.1001227

Contact Information

Maarten C. W. Janssen (Contact Author)
University of Vienna ( email )
Vienna, A-1210
Jose Luis Moraga-Gonzalez
VU University Amsterdam ( email )
De Boelelaan 1105
1081 HV Amsterdam
HOME PAGE: http://www.tinbergen.nl/~moraga/
University of Groningen
P.O. Box 800
9700 AV Groningen
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