Horizontal Mergers of Price-Setting Firms with Sunk Capacity Costs

Posted: 18 May 2000

Abstract

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

Suggested Citation

Baik, Kyung Hwan, Horizontal Mergers of Price-Setting Firms with Sunk Capacity Costs. QUARTERLY REVIEW OF ECONOMICS AND FINANCE, Vol 35 No 3, Fall 1995. Available at SSRN: https://ssrn.com/abstract=6706

Kyung Hwan Baik (Contact Author)

Sungkyunkwan University ( email )

Department of Economics
Seoul, 110-745
Korea, Republic of (South Korea)
+82-2-760-0432 (Phone)
+82-2-744-5717 (Fax)

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