Competitive Effects of Horizontal Mergers With Asymmetric Firms

Cuong Hung Vuong and Edmond Baranes, (2021) ''Competitive effects of horizontal mergers with asymmetric firms'', Economics Bulletin, Vol. 0 No. 0 p.A66.

13 Pages Posted: 22 Apr 2021

See all articles by Cuong Hung Vuong

Cuong Hung Vuong

University of Paris-Est-Créteil-Val-de-Marne

Edmond Baranes

University of Montpellier, MRE

Date Written: April 10, 2021

Abstract

This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.

Suggested Citation

Vuong, Cuong Hung and Baranes, Edmond, Competitive Effects of Horizontal Mergers With Asymmetric Firms (April 10, 2021). Cuong Hung Vuong and Edmond Baranes, (2021) ''Competitive effects of horizontal mergers with asymmetric firms'', Economics Bulletin, Vol. 0 No. 0 p.A66., Available at SSRN: https://ssrn.com/abstract=3823744 or http://dx.doi.org/10.2139/ssrn.3823744

Cuong Hung Vuong (Contact Author)

University of Paris-Est-Créteil-Val-de-Marne ( email )

Creteil
Creteil, 94000
France
0616743663 (Phone)

Edmond Baranes

University of Montpellier, MRE ( email )

Av Raymond Dugrand
Montpellier Cedex, Cedex 2 34960
France

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