WELFARE-ENHANCING MERGERS UNDER PRODUCT DIFFERENTIATION

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. Copyright � 2010 The Authors. Journal compilation � 2010 Blackwell Publishing Ltd and The University of Manchester.