2010•Manchester SchoolOpen access

WELFARE-ENHANCING MERGERS UNDER PRODUCT DIFFERENTIATION

Tina Kao, Flávio Menezes

Abstract

In this paper we consider a model of duopoly with differentiated products to examine the welfare effects of a merger between two asymmetric firms. We find that, for quantity competition, the parameter range for welfare-enhancing merger widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.

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Key concepts: Product differentiation, Duopoly, Welfare, Competition (biology), Economics, Product (mathematics), Industrial organization, Microeconomics