Mergers, Entry, and Consumer Welfare
61 Pages Posted: 8 Mar 2020 Last revised: 30 Jul 2021
Date Written: July 30, 2021
We analyze mergers and entry in differentiated-products oligopoly models of price competition. Under logit or constant elasticity of substitution demands, entry that restores pre-merger consumer surplus renders merger unprofitable. Thus, by revealed preference, it can be appropriate to infer entry barriers in merger review. The result extends to nested and random coefficients demand systems unless the entrant is a substantially distant competitor of the merging firms. We develop modeling frameworks to guide empirical analysis when theory is not dispositive. Applying these to the T-Mobile/Sprint merger, we find that the Court may have erred in treating DISH as a merger-induced entrant.
Keywords: mergers, entry, repositioning, antitrust
JEL Classification: K21, L13, L41
Suggested Citation: Suggested Citation