The Competitive Effects of Mergers with Cournot Competition

33 Pages Posted: 24 Jul 2021

See all articles by Markus Reisinger

Markus Reisinger

Frankfurt School of Finance & Management - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Hans Zenger

European Union - Directorate General for Competition

Date Written: July 5, 2021

Abstract

This paper provides a full characterization of the price effects of horizontal mergers in the Cournot model with heterogeneous firms and constant returns to scale. We show that the price change brought about by a merger only depends on the smaller merging firm's share and the number of firms, but is independent of the distribution of shares among other firms. Price effects are determined by factors that are either directly observable by competition authorities or can be bounded under relatively mild assumptions on demand curvature or pass-through. Estimates based on concentration measures can instead be seriously misleading. We also provide closed-form solutions for calibration that approximate merger effects on the basis of simple pre-merger parameters.

Keywords: Cournot competition, mergers, price effects, demand curvature, pass-through

JEL Classification: D21, D43, L13, L41, K21

Suggested Citation

Reisinger, Markus and Zenger, Hans, The Competitive Effects of Mergers with Cournot Competition (July 5, 2021). Available at SSRN: https://ssrn.com/abstract=3881145 or http://dx.doi.org/10.2139/ssrn.3881145

Markus Reisinger (Contact Author)

Frankfurt School of Finance & Management - Economics Department ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Hans Zenger

European Union - Directorate General for Competition ( email )

Place Madou, Madouplein 1
Saint-Josse-ten-Noode/Sint-Joost-ten-Noode
Brussels, B-1049
Belgium

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