Horizontal mergers and product quality

• Author(s): Brekke, Kurt R. ; Siciliani, Luigi ; Straume, Odd Rune
• Date: 2014
• Persistent ID: http://hdl.handle.net/1822/27959
• Origin: RepositóriUM - Universidade do Minho
• Subject(s): Horizontal mergers; Quality; Spatial competition
• Document Type: Research paper
• Language: English

Description

Using a spatial competition framework with three ex ante identical firms, we study the effects of a horizontal merger on quality, price and welfare. The merging firms always reduce quality. They also increase prices if demand responsiveness to quality is sufficiently low. The non-merging firm, on the other hand, always responds by increasing both quality and prices. Overall, a merger leads to higher average prices and quality in the market. The welfare implications of a merger are not clear-cut. If the demand responsiveness to quality is sufficiently high, some consumers benefit from the merger and social welfare might also increase.