Horizontal Mergers of Price-Setting Firms with Sunk Capacity Costs
Posted: 18 May 2000
We examine the profitability of a horizontal merger and its effects on the outsiders' profits and industry prices in a market for a homogeneous product where firms with sunk capacity costs engage in price competition. We show that, unlike previous studies, a merger can hurt the outsiders, the postmerger prices can be lower than the premerger prices, and a merger can reduce the joint profits of the participating firms even in a static model of price competition.
JEL Classification: G30
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