Multiproduct Mergers and Quality Competition
36 Pages Posted: 23 Sep 2018 Last revised: 30 Apr 2019
Date Written: April 26, 2019
We investigate mergers in markets where quality differences between products are central and firms may reposition their product lines by adding or removing products of different qualities following a merger. We find that such mergers are materially different from those studied in the existing literature. Mergers without synergies may exhibit a product-mix effect which raises consumer surplus, but only when the pre-merger industry structure satisfies certain observable features. Synergies may lower consumer surplus. Mergers are more readily profitable when an industry exhibits multiple qualities. We provide a new measure of industry concentration: the Quality-adjusted Herfindahl-Hirschman Index extends the standard Herfindahl-Hirschman Index to markets in which quality differences are central.
Keywords: Merger, multiproduct firm, synergy
JEL Classification: K2, L4
Suggested Citation: Suggested Citation