Mergers in Imperfectly Segmented Markets

38 Pages Posted: 29 Oct 2009

See all articles by Pio Baake

Pio Baake

German Institute for Economic Research (DIW Berlin)

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: September 2009

Abstract

We present a model with firms selling (homogeneous) products in two imperfectly segmented markets (a "high-demand" and a "low-demand" market). Buyers are mobile but restricted by transportation costs, so that imperfect arbitrage occurs when prices differ in both markets. We show that equilibria are distorted away from Cournot outcomes to prevent consumer arbitrage. Furthermore, a merger can lead to an equilibrium in which only the "high-demand" market is served. This is more likely (i) the lower consumers' transportation costs and (ii) the higher the concentration of the industry. Therefore, merger incentives are much larger than standard analysis suggests.

Keywords: Imperfect Market Segmentation, Oligopoly, Price Discrimination, Consumer Arbitrage, Mergers

JEL Classification: D43, L13, L41

Suggested Citation

Baake, Pio and Wey, Christian, Mergers in Imperfectly Segmented Markets (September 2009). DIW Berlin Discussion Paper No. 919, Available at SSRN: https://ssrn.com/abstract=1494959 or http://dx.doi.org/10.2139/ssrn.1494959

Pio Baake (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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