Post-Merger Product Repositioning

19 Pages Posted: 14 Apr 2008

See all articles by Amit Gandhi

Amit Gandhi

University of Wisconsin - Madison

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Steven Tschantz

Vanderbilt University - Department of Mathematics

Gregory J. Werden

affiliation not provided to SSRN

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Abstract

This paper analyzes the effects of mergers between firms competing by simultaneously choosing price and location. Products combined by a merger are repositioned away from each other to reduce cannibalization, and non-merging substitutes are, in response, repositioned between the merged products. This repositioning greatly reduces the merged firm's incentive to raise prices and thus substantially mitigates the anticompetitive effects of the merger. Computation of, and selection among, equilibria is done with a novel technique known as the stochastic response dynamic, which does not require the computation of first-order conditions.

Suggested Citation

Gandhi, Amit and Froeb, Luke M. and Tschantz, Steven T. and Werden, Gregory J., Post-Merger Product Repositioning. The Journal of Industrial Economics, Vol. 56, Issue 1, pp. 49-67, March 2008. Available at SSRN: https://ssrn.com/abstract=1119635 or http://dx.doi.org/10.1111/j.1467-6451.2008.00332.x

Amit Gandhi (Contact Author)

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Steven T. Tschantz

Vanderbilt University - Department of Mathematics ( email )

Nashville, TN 37240
United States

Gregory J. Werden

affiliation not provided to SSRN

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