TransWikia.com

Can a horizontal merger in a highly concentrated market be beneficial to consumers if the cost synergy of the 2 merging firms is large enough?

Economics Asked by SlimeShady562 on January 14, 2021

There are three firms in a market and they compete in quantities ( a la Cournot).Two of the three firms merge (horizontal merger). The two merging firms will be able to reduce marginal costs substantially once the merger is complete due to proprietary technology,so the merger from three firms to two firms is profitable (merger paradox does not apply).The merged firms will also be able to license this new technology to the other firm so that their marginal costs will be substantially reduced as well. Because there are only 3 firms in the market, the market is already highly concentrated and the merger would result in a substantial increase in HHI for the market. Using the cournot model to solve for equilibrium price and quantities, I find that the consumer surplus in the market increases after the merger. Is the increase in consumer surplus enough to justify the merger even though the market has become significantly more concentrated?

Add your own answers!

Ask a Question

Get help from others!

© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP