The Profitability of Small Horizontal Mergers with Nonlinear Demand Functions
Quaderni DSE Working Paper No. 728
15 Pages Posted: 9 Mar 2011
Date Written: January 2011
We want to take a differential game approach with price dynamics to conduct an investigation into the consequences of horizontal merger of firms where the demand function is nonlinear. We take into consideration the open-loop equilibrium. We show that in relation to the fact that the demand is nonlinear and prices follow some stickiness an incentive for small merger exists, while it does not appear under the standard approach using a linear demand function.
Keywords: Horizontal mergers, Differential game, Sticky price, Nonlinear demand
JEL Classification: C73, D43, G34, L13
Suggested Citation: Suggested Citation