Book contents
- Frontmatter
- Contents
- Preface
- Introduction
- I MARKET STRUCTURE
- II INDUSTRIAL PRICING AND PRICING SCHEMES
- III COMPETITION POLICY
- IV MERGERS AND MERGER CONTROL
- 17 Unprofitable exogenous mergers
- 18 Profitable horizontal mergers and welfare
- 19 Using the Herfindahl–Hirschman index
- 20 Cournot and merger control
- 21 Vertical mergers
- 22 Enforcement of the US merger guidelines
- 23 Enforcement of the European merger regulation
- Index
17 - Unprofitable exogenous mergers
Losses from horizontal merger: the effects of an exogenous change in industry structure on Cournot-Nash equilibrium
Published online by Cambridge University Press: 21 September 2009
- Frontmatter
- Contents
- Preface
- Introduction
- I MARKET STRUCTURE
- II INDUSTRIAL PRICING AND PRICING SCHEMES
- III COMPETITION POLICY
- IV MERGERS AND MERGER CONTROL
- 17 Unprofitable exogenous mergers
- 18 Profitable horizontal mergers and welfare
- 19 Using the Herfindahl–Hirschman index
- 20 Cournot and merger control
- 21 Vertical mergers
- 22 Enforcement of the US merger guidelines
- 23 Enforcement of the European merger regulation
- Index
Summary
Introduction
In the Cournot (1838) solution to the oligopoly problem, each firm's output choice is profit maximizing given the outputs of the other firms. The Cournot approach is conventionally extended to industries with merged firms and cartels by treating each merged entity as a collection of plants under the control of a particular player in a non-cooperative game. The payoff to each coalition is the sum of the profits that accrue to each of its members. For each exogenous specification of market structure (partition of plants into coalitions), outputs, profits, and market prices are endogenously determined.
The purpose of this article is to explore and evaluate an unnoticed comparative-static implication of such Cournot models: some exogenous mergers may reduce the endogenous joint profits of the firms that are assumed to collude. Similar results arise using other solution concepts (Cave, 1980). In the Cournot case losses from horizontal merger may seem surprising, since the merged firm always has the option of producing exactly as its components did in the pre-merger equilibrium. But such a situation is not an equilibrium following the merger, since – given unchanged outputs of the other players – the merged firm would then have an incentive to alter its production (i.e., to reduce it).
- Type
- Chapter
- Information
- Applied Industrial Economics , pp. 327 - 339Publisher: Cambridge University PressPrint publication year: 1998
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