Mergers, Entry, and Consumer Welfare

31 Pages Posted: 8 Mar 2020

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 7, 2020

Abstract

We analyze mergers and entry in a differentiated products oligopoly model of price competition. We prove that any merger among incumbents is unprofitable if it spurs entry sufficient in magnitude to preserve consumer surplus. Thus, mergers occur in equilibrium only if barriers limit entry. Numerical simulations indicate that with profit-neutral mergers --- the best-case for consumers --- entry mitigates under 30 percent of the adverse price effects and, in most cases, under 50 percent of the consumer surplus loss. The results suggest a limited and conditional role for entry analysis in merger review.

Keywords: mergers, entry, repositioning, antitrust policy

JEL Classification: K21, L13, L41

Suggested Citation

Caradonna, Peter and Miller, Nathan and Sheu, Gloria, Mergers, Entry, and Consumer Welfare (February 7, 2020). 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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