Post-Merger Product Repositioning

20 Pages Posted: 28 Jul 2005

See all articles by Amit Kumar Gandhi

Amit Kumar Gandhi

University of Chicago - Booth School of Business

Luke M. Froeb

Vanderbilt University - Owen Graduate School of Management

Steven Tschantz

Vanderbilt University - Department of Mathematics

Gregory J. Werden

U.S. Department of Justice - Antitrust Division

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2005

Abstract

We study mergers among firms that compete by simultaneously choosing price and location. The merged firm moves its two products away from each other to reduce cannibalization, and the non-merging firms move their products in between the merging firm's products. Post-merger repositioning increases product variety, which benefits consumers, but repositioning also affects post-merger prices in two ways: There is upward pressure on price as products spread out, but the merged firm's incentive to raise prices is reduced as its products are moved away from each other. Either effect can dominate, although the latter is likely to be the more important. We use a novel technique known as the stochastic response dynamic to find equilibria, which does not require the computation of first-order conditions.

Keywords: antitrust, game theory, economic modeling

Suggested Citation

Gandhi, Amit Kumar and Froeb, Luke M. and Tschantz, Steven T. and Werden, Gregory J., Post-Merger Product Repositioning (June 20, 2005). Vanderbilt Law and Economics Research Paper No. 05-19. Available at SSRN: https://ssrn.com/abstract=766845 or http://dx.doi.org/10.2139/ssrn.766845

Amit Kumar Gandhi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773 702 7743 (Phone)

Luke M. Froeb (Contact Author)

Vanderbilt University - Owen Graduate School of Management ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-9057 (Phone)
615-343-7177 (Fax)

Steven T. Tschantz

Vanderbilt University - Department of Mathematics ( email )

Nashville, TN 37240
United States

Gregory J. Werden

U.S. Department of Justice - Antitrust Division ( email )

450 Fifth Street, NW
9th Floor
Washington, DC 20530
United States
202-307-6366 (Phone)

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