Mergers, Entry, and Consumer Welfare

64 Pages Posted: 8 Mar 2020 Last revised: 11 Feb 2021

See all articles by Peter Caradonna

Peter Caradonna

affiliation not provided to SSRN

Nathan Miller

Georgetown University - Robert Emmett McDonough School of Business

Gloria Sheu

Board of Governors of the Federal Reserve System

Date Written: February 10, 2021

Abstract

We analyze mergers and entry in a differentiated products oligopoly model of price competition. Any merger that does not yield efficiencies is unprofitable if it induces entry sufficient to preserve pre-merger consumer surplus. Thus, mergers occur in equilibrium only if barriers limit entry. Mergers that increase consumer surplus can occur in equilibrium for specific magnitudes of efficiencies and post-merger entry, and these combinations are identified from pre-merger market shares. The entry costs that would rationalize post-merger entry similarly can be bounded using pre-merger market shares. An application to the T-Mobile/Sprint merger illustrates the theoretical framework.

Keywords: mergers, entry, repositioning, antitrust

JEL Classification: K21, L13, L41

Suggested Citation

Caradonna, Peter and Miller, Nathan and Sheu, Gloria, Mergers, Entry, and Consumer Welfare (February 10, 2021). Georgetown McDonough School of Business Research Paper No. 3537135, Available at SSRN: https://ssrn.com/abstract=3537135 or http://dx.doi.org/10.2139/ssrn.3537135

Peter Caradonna

affiliation not provided to SSRN

Nathan Miller (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Gloria Sheu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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