The Coordinated Effects of Mergers in Differentiated Products Markets

50 Pages Posted: 15 Nov 2004

See all articles by Kai-Uwe Kuhn

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

Date Written: November 2004

Abstract

The paper addresses the issue of coordinated effects of mergers in the framework of a differentiated products model. Firms' assets are product varieties that can be sold individually or entirely transferred to another firm in a merger. We show that under symmetric optimal punishment schemes the highest feasible collusive price declines from any asset transfer to the largest firm as long as the size of the smallest firm is unchanged. In contrast, for fully optimal punishment schemes the prices of firms that get larger increase and those of firms that get smaller decrease. However, in all cases mergers are unprofitable unless the length of product lines is very asymmetric. We discuss the implications of the analysis for merger policy.

Keywords: Collusion, product lines, mergers, coordinated effects, joint dominance

JEL Classification: D43, K21, L13, L41

Suggested Citation

Kuhn, Kai-Uwe, The Coordinated Effects of Mergers in Differentiated Products Markets (November 2004). Available at SSRN: https://ssrn.com/abstract=618561 or http://dx.doi.org/10.2139/ssrn.618561

Kai-Uwe Kuhn (Contact Author)

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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