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Cuong Hung Vuong and Edmond Baranes
''Competitive effects of horizontal mergers with asymmetric firms''
( 2021, Vol. 41 No.2 )
This paper aims at investigating the impacts of introducing cost asymmetry in horizontal merger analysis. In the absence of efficiency gains, previous literature states the negative competitive effects of a merger between symmetric firms. We go beyond the literature and show that the result is only likely to hold for a low level of asymmetry. In particular, we build a tractable model with three firms in which one of them has a different cost structure. After merging two symmetrical firms, the outsider always reduces (increases) price (investments), while the insiders choose the opposite strategies. In particular, if the outsider's cost is sufficiently low, the increase in its investment could outweigh the decreases in those of the merged entity, leading to higher total investments post-merger. Similarly, consumer surplus could be improved thanks to the decrease in the outsider's price.
Keywords: Horizontal merger, Cost-reducing, Innovation, Competition, Investment
JEL: L4 - Antitrust Issues and Policies: General
L5 - Regulation and Industrial Policy: General
Manuscript Received : Jan 15 2021 Manuscript Accepted : Apr 09 2021

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