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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 4/2014:
Horizontal Mergers and Product Quality-

Kurt R. Brekke (), Luigi Siciliani () and Odd Rune Straume ()

Abstract: 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.

Keywords: Horizontal mergers; Quality; Spatial Competition.; (follow links to similar papers)

JEL-Codes: L13; L15; L41; (follow links to similar papers)

26 pages, February 10, 2014

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