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Mergers, Asymmetries and Collusion: Experimental Evidence

26 Pages Posted: 5 Sep 2007 Last revised: 15 Jul 2008

Miguel Alexandre Fonseca

University of London - Department of Economics

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods

Abstract

We analyze the impact of mergers in experimental Bertrand-Edgeworth oligopolies. Treatment variables are the number of firms (two, three) and the distribution of industry capacity (symmetric, asymmetric). Consistent with a dynamic collusion model, we find that, even though they are more concentrated, asymmetric markets exhibit lower prices than symmetric markets with the same number of firms. Consistent with the static Nash prediction, duopolies charge higher prices than triopolies when we control for (a)symmetry. The overall impact of a merger (which comprises both fewer firms and an asymmetry) is anti-competitive but the price increase is not significant.

Keywords: asymmetries, collective dominance, coordinated effects, mergers, unilateral effects

JEL Classification: C72, C90, D43, G34

Suggested Citation

Fonseca, Miguel Alexandre and Normann, Hans-Theo, Mergers, Asymmetries and Collusion: Experimental Evidence. Economic Journal, Vol. 118, March 2008. Available at SSRN: https://ssrn.com/abstract=1011962 or http://dx.doi.org/10.2139/ssrn.1011962

Miguel Alexandre Fonseca

University of London - Department of Economics ( email )

Royal Holloway College
Egham
Surrey, Surrey TW20 0EX
United Kingdom

Hans-Theo Normann (Contact Author)

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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